No Monero or Dash Investment Trust?

This week Grayscale filed the with the SEC to bring the Zcash Investment Trust to accredited investors for about $11 million. So far, Grayscale has done Investment Trusts for Bitcoin, Ethereum Classic, and now Zcash; but why no Monero or Dash Investment Trust?

Barry Silbert preannounced the Zcash Investment Trust on Twitter earlier this year. He also implied the Trust would be offered due to investor demand and the investment case for Zcash.  The Zcash protocol does employ zk-SNARK for the exchange of payments without revealing participant information. In addition, Zcash is the third most popular** coin offering privacy, anonymity, and fungibility. So why no Monero and Dash Investment Trust?

Besides the underlying protocol, a coin’s scarcity of supply makes them more valuable to investors. Zcash’s total monetary will be 21 million coins. When Zcash launched last year, stakeholders would be receiving 10% or 2.1 million coins of the total monetary base. Most stakeholders would receive their “founders reward” over four years, but investors received their coins in the first year.

Could this be why there is no Monero or Dash Investment Trust?

Barry Silbert and his Digital Currency Group were both early investors in Zcash, the protocol and the company. They are also the same parties behind Grayscale. Now after the launch of Zcash, they should have received all of their Zcash coins. A great way for Silbert and DCG to unload their Zcash holdings, and not depressing the market, would be selling them to accredited investors through an Investment Trust.

Zcash Investment Trust shares can be bought and sold without impacting the  Zcash coins in circulation.  Is this why no Monero or Dash Investment Trust?

LedgerX Bets on BTC Options


LedgerX has quietly listed bitcoin financial contracts: swap and options. After touting a trading volume of $1 million, LedgerX now offers hedge funds, family offices, sovereign wealth funds, and others a way to play bitcoin. Of the two instruments, the bitcoin options may be the most popular among institutional investors.

As the name implies, day ahead swaps last only one day. The swap buyer agrees to pay today for tomorrow’s delivery of bitcoin by the swap seller. If the price of bitcoin increases after one day, then money is made by the swap buyer; money is lost if the prices decrease. While called day ahead swaps, these financial contracts act more like commodity futures.

With a futures contract, the seller agrees to deliver goods at a future date and the buyer promises to pay an agreed upon price. In addition, swap agreement usually required a swap of payments between the buyer and seller. With the day ahead swaps, the buyer makes a payment, but seller’s obligation is satisfied with the physical delivery of bitcoin. Cash-settled bitcoin futures are planned to be listed by the Chicago Board of Exchange.

Bitcoin options maybe more important for investors. Options provide the buyer with the right, but not the obligation, to either purchase or sell an asset from the option seller. With equity options, the option buyer has the right to sell (put) or buy (call) stock from the option seller at specified price during an exercise period. For the right to put or call an asset, the option buyer pays the option seller a premium.

Option allows investors to bet on price swings. For example, you think Apple price will not rise this year, so you sell and collect a premium for a call option. The call option give the holder the right to purchase Apple stock from you at $160 per share. If Apple’s price increase to say $200, the option is exercised, but if not then the seller gets to keep the option premium. If you think Apple will go up, then you would sell a put option.

So replace equity with bitcoin, and you can see how options can be used by institutional funds to trade crypto-prices.


Another Way to Own Ether


XBT Provider comes along with another way to own ether, indirectly. After its success with bitcoin, this week XBT introduced a pair of exchange traded notes based upon the ether cryptocurrency. The ether notes join two bitcoin ones and will which traded outside the US on the Nasdaq Stockholm Exchange.

Exchange traded notes are debt and instead paying an interest rate, the rate paid is based on something else, such as the price change of bitcoin or ether. For example, assume you spend $10,000 in exchange for the note and later ether’s price increases 10%, then your investment is now worth $11,000.

Exchange traded notes are common in the US for about ten years. When issued by an investment banks, such as Barclays, Credit Suisse, Goldman Sachs, and others, the bank takes your money and promise to pay you later when the notes are due. Between then and now, the exchange traded notes trade likes stocks and hopely the market price tracks the underlying value of the asset.

XBT’s exchange traded notes are different than the US variety. First, the ether notes have no maturity date, but instead are open ended. Secondly, the note are hedged. This means that when XBT takes your money from the ether note sale and they then purchased an equivalent amount of ether, so your notes are backed; this often does not happen with a US issued exchange traded notes.

Given custody and other issues associated with a direct cryptocurrency investment, synthetic crypto-products may be beneficial for both retail and institutional investors. 


This post is for educational purposes only and should not be used for investment purposes.

A Not So Passive Crypto-Fund


Bitwise Asset Management’s new crypto-fund steals much from Wall Street, unfortunately. After analogizing crypto-currencies to equities, Bitwise introduced to accredited investors a passive product called the Bitwise HOLD 10 Private Index Fund. And like traditional hedge funds, the the HOLD 10 could be tax inefficient for investors.

As the name implies, the Hold 10 will hold ten crypto-currencies.  Bitcoin and ethereum make up the majority or approximately 75% of the index. Eight remaining currencies, including Litecoin and Ripple, make up the rest of the index. The Private Index supposedly makes crypto-currencies investing as simple as using an equity index, such as the S & P 500, for investing in stocks.

Hold 10 investors will only be charged fees of 2%-3% and not the 20% of profits associated with traditional hedge funds. Hedge funds use leverage to be either long and short assets, such as stocks or bonds. Using active management, hedge fund managers trade often to make outsize gains for investors and ultimately for themselves. The active trading also produces lots of taxable income for hedge fund investors.

The Private Index of ten crypto-currencies is rebalanced monthly. As such, each month some currencies would be sold and others purchased to keep the index inline. In addition, the rebalancing may occur more often than not given the volatility and price swings in crypto-currencies.

So while the Hold 10 may be a passive investment strategy, it could have the same trading activity as hedge funds or other equity investments. Per its website, the Hold 10 fund is structured as a pass-through entity, like many hedge funds. That means Hold 10 investors own a slice of the fund’s assets and a slice of any potential taxable gains from rebalancing.


This post is for educational purposes only and should not be used for investment purposes.


Long and Short of Bitcoin (ETF)


Proshares’ bitcoin ETF application is the latest to come before the SEC. Now other bitcoin ETF applications have come and gone, including one from the Winklevoss brothers.

What’s important here is that Proshares’ application is for both a long and short bitcoin ETF.  The latter means that retail investors would able to bet against the direction of bitcoin.

Rather than own actual bitcoin, Proshares is investing in bitcoin futures; an approach also used by VanEck and Rex. Futures are financial contracts between two parties calling for the delivery and payment of goods at a time in the future.

Futures allow market participants to shift price risk and also act as substitutes for real assets, such as bitcoin in this case.

Any “synthetic” bitcoin ETF depends the listing and trading of bitcoin futures. The Chicago Board of Exchange announced the listing of bitcoin futures later this year or early next year. This is why the Van Eck was pulled, in part, because no bitcoin futures currently trade.

After listing, there must be enough market participants – traders, hedge funds, institutional investors, or coin exchanges – that want part of the action.

And without enough interest, there will be very little contracts trading and lots of illiquidity. This may be why the CME, the other Chicago futures exchange, decided at this time not to launch bitcoin futures.

An active market for bitcoin futures would help draw more institutional investors into the cryptocurrency space.

Retail investors would also benefit by being able to bet against bitcoin. Currently, the only way to short bitcoin is through a margin account on a coin exchange such as Kraken or Poloniex. A “short” bitcoin ETF, similar to Proshares other inverse products, would make shorting less costly and more accessible to retail investors.