The bitcoin buying frenzy is showing no sign of slowing anytime soon. Jersey-based asset manager Global Advisors – which owns the exchange traded note (ETN) issuer XBT Provider – has seen a tripling in trading volumes since June 2016 in its bitcoin ETNs listed on the Nasdaq OMX exchange in Stockholm, Sweden (www.nasdaqomxnordic.com).
Jean-Marie Mognetti, co-principal and head of trading and operations at Global Advisors, says there is ‘significant interest’ in the digital currency. The price hit an all-time high of $2,750 on the Coindesk bitcoin price index on 25 May, before falling nearly 20 per cent on profit-taking, briefly dipping below $2,000 on Saturday 27 May. It is currently trading at $2,214, back above where it started last week.
As a result of investors seeking out hassle-free routes into bitcoin investing, Mognetti says XBT Providers ‘has seen constant growth since last June, representing a tripling in trading volumes over the past 12 months’. He continues: ‘Our two Bitcoin ETNs are on a run that doesn't seem to be stopping. Our products are routinely volume leaders on Nasdaq OMX since late 2016.’
XBT Providers’ Bitcoin Tracker Euro (XBTE) and Bitcoin Tracker One (XBT) ETNs track the price of bitcoin using synthetic replication. Bitcoin Tracker Euro closed down 0.4 per cent on the day at €99.01 on 30 May, a return of 371 per cent year to date.
Record volumes on Friday 26 May made the bitcoin products the second-most traded ETNs on the Nasdaq OMX, turning over €6,861,767 (£6 million). XBT Provider now has $82 million of assets under management.
Bitcoin Tracker Euro is available to UK investors on the Hargreaves Lansdown fund platform. Most brokers by default do not offer access to Nasdaq/OMX but if you contact your broker directly they may be able to help. The Bitcoin Tracker One ETN is the same as the Bitcoin Tracker Euro except that it is denominated in Swedish Krona.
Buying either fund means there is added currency risk to take into account, in addition to the extreme volatility that has long been a feature of the bitcoin price.
Global Advisors bought Swedish company XBT Provider in June 2016. XBT Provider was originally majority-owned by bankrupt bitcoin miner KnC and was put up for sale by the company’s creditors. Bitcoin transactions depend on computers to crack the cryptographic puzzle as part of the verification process on the blockchain distributed ledger. The computers – or nodes – that crack the puzzle first are rewarded by payment in bitcoin, which is how the coins come into circulation.
Daniel Masters, co-founder of Global Advisors and formerly of US investment bank JPMorgan where he was in charge of its energy trading desk, told Reuters at the time of the purchase: ‘It can be hard for some investors to access the bitcoin market. This gives one-click access to bitcoin by anyone on an electronic trading platform that can access Nasdaq's global marketplace.’
The only other collective vehicle available to UK investors is the Greyscale Bitcoin Investment Trust (GBTC), a US over-the-counter product that is highly illiquid but is available on most fund platforms, including on Money Observer’s sister website Interactive Investor. It is currently trading at $400, up 476 per cent year to date.
In yet another indication of the bubble-like atmosphere developing, so called initial coin offerings (ICOs – the latest ones are listed here: www.smithandcrown.com/icos/ ) are also attracting speculators in a fashion not seen since the dotcom boom of 2000. Initial public coin offerings are a way for new cryptocurrencies to raise money for their product. They solve the problem of coin distribution as those who invest receive a portion of the new coin.
However, just as in the dotcom bubble that saw investors chase the latest initial public offerings from internet companies, many of the business cases are unproven and almost all of the companies behind the ICOs have no revenue to speak of. Picking the next Amazon or eBay in the digital currency universe could prove even trickier than picking an e-commerce winner back in 2000. In 2016 ICOs attracted $101 million of investor funds. Five months into this year and the money invested in ICOs has already reached $180 million.
Investing in bitcoin and other digital currencies is highly speculative: investors interested in gaining exposure should only allocate a fraction of the speculative portion of their portfolio to the asset class, and should aim to hold for the long term. Investors new to the digital currency world could also consider following cryptocurrency traders on social trading platforms such as eToro.
So-called second-tier currencies such as ether, used on the Ethereum blockchain platform (up 15 per cent today at $196), and XRP from the Ripple financial payments solution start-up, are also seeing significant speculative interest from investors as a byproduct of the bitcoin price rally.