Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Before the Bitcoin ETF was approved for listing, Grayscale Bitcoin Trust was one of the few investment products that provided companies, individual investors, and family wealth management funds with legal and compliant ways to invest in Bitcoin. However, since Canadian ETFs joined the market competition, GBTC’s capital inflow seems to have begun to be hampered. Why did Grayscale spare no effort to convert its trust structure to ETF? This article will analyze the design mechanism and market operation (market value, share and AUM, net worth tracking performance, liquidity and discounts and premiums).


  • Canadian ETFs have lower management fees, stronger liquidity, lower thresholds and more flexible redemption mechanisms than GBTC.

  • GBTC has a first-mover advantage, a strong industry position and a large volume (the market value, share, AUM and liquidity have orders of magnitude advantages), but under the competitive pressure of Canadian ETFs, the price deviation is serious, the discount and the premium are large, and the discount is in a long-term state. It is no longer the only best choice for investors.

  • 3iQ Coinshares Bitcoin and Ethereum ETFs have the largest market capitalization, share and AUM, surpassing Purpose, which has a first-mover advantage.

  • The net value of the Bitcoin ETF is basically the same as the overall fluctuation of the BTC price. The net value tracking performance: Purpose>CI Galaxy>Evolve>3iQ Coinshares.

  • The liquidity differentiation between Bitcoin ETFs is serious, and Purpose is much larger than the other three.

  • Faced with the pressure of currency price turbulence, Canadian ETFs have maintained good trading capabilities without huge premiums or discounts, and the mapping of the value of the underlying asset is more intuitive.

“Gray Bitcoin Trust” 

GBTC is the first Bitcoin private placement trust fund, and it conducted its first private placement in 2013. Since then, follow-up subscriptions will be opened to qualified investors from time to time. The minimum subscription amount is US$50,000. Bitcoin or US dollar cash can be used to subscribe, but neither can be redeemed. In addition, Grayscale has also launched cryptocurrency trust funds such as ETH (ETHE).

As the pioneer of Bitcoin trust funds, GBTC has exposed many problems:

  • Due to the inability to redeem, the price deviated seriously.

  • The management fee is relatively high. GBTC charges a 2% management fee, which is at a relatively high level among US Bitcoin trusts.

  • Only qualified investors can apply for private equity shares of GBTC.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 1. Grayscale Trust Development Plan Source: Grayscale’s official website

In order to solve the above problems, Grayscale has formulated a four-step development plan (see Figure 1). The four steps are: private placement, over-the-counter secondary market, SEC reporting company and eventually becoming an ETF.

The third step has now been reached. GBTC submitted Form 10 in November 2019 and became the first Bitcoin private equity trust registered with the SEC as a reporting company effective January 21, 2020.

Gray had previously submitted an application for a Bitcoin ETF in 2016, but it was eventually withdrawn. Now, Grayscale believes that it is in a leading position in applying for ETF regardless of its operating conditions and compliance.

“Canadian cryptocurrency ETF design mechanism”

In February this year, Canada ushered in the spring of ETF landing. Several cryptocurrency ETFs such as Purpose, CI Galaxy, 3iQ Coinshares and Evolve have been approved to be listed on the Toronto Stock Exchange (TSX).

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 2. The mechanism of Canadian listed cryptocurrency ETF Data source: official website and prospectus compiled by IDEG

In terms of design mechanism, as shown in Figure 2, these ETFs have the following characteristics:

  • Concentrated release time : from February to April;

  • Different reference indexes: Although the reference indexes adopted by the four companies are different, they are all selected based on anti-manipulation, real-time and recognized market standards .

  • Lower management costs : Both are lower than GBTC (2%) and ETHE (2.5%), and the lowest CI Galaxy is only 0.4%;

  • The threshold is low and the redemption mechanism is more flexible : there is no minimum investment limit and can be redeemed every trading day, while GBTC requires a qualified investor to purchase from $50,000 and is not redeemable, which means that Canadian ETFs have a more complete arbitrage mechanism , To better track the price trend of Bitcoin ;

  • Stronger liquidity : Unlike GBTC which can only be traded over-the-counter (OTCQX), these ETFs are all listed and traded on the Toronto Stock Exchange (TSX), a mainstream exchange, and some are open for option trading on the Montréal Exchange.

“Canadian cryptocurrency ETF VS GBTC market performance”

In terms of market performance, the performance level will be analyzed from several indicators such as market value, share, AUM, net worth tracking performance, liquidity, and discounts and premiums, and compare them with GBTC.

“Market value, share and AUM”

Judging from the overall market performance in July, Grayscale’s GBTC and ETHE have a first-mover advantage due to their launch time much earlier than Canadian ETFs, which has eased the market’s demand for compliant investment tools such as digital currency ETFs to a certain extent. . As shown in Figures 3 and 4, GBTC shows an order of magnitude gap in terms of market value (Market Cap), Shares (Listed Shares Outstanding), and Asset Management Scale (AUM).

This also reflects the biggest advantage of Gray: a strong position in the industry. Of course, the strong AUM performance of Grayscale GBTC also needs to consider other mechanical reasons. On the one hand, because the primary market cannot be redeemed, on the other hand, there is a six-month lock-up period in the secondary market.

However, according to a report by CryptoCompare, in the bear market from late May to late June, Bitcoin fell by 15.1%, the scale of digital asset management decreased by 9.5%, and the average daily sales of investment products fell from the peak (December 2020) 63.1%, exacerbating the net outflow situation.

During this period, ETFs represented by Canada’s 3iQ were the only product structure with AUM growth, an increase of 8.5% to US$1.8 billion. The gray-based trust product AUM dropped by 9.3%. It can be seen that despite the huge volume of Grayscale Trust products, under the competitive pressure of Canadian ETFs, it is no longer the only most preferred choice for investors.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 3. Market Cap & Listed Shares Outstanding Data source: TSX IDEG

Among Canadian Bitcoin ETFs, Purpose Bitcoin ETF (secondary market code BTCC), as the first Bitcoin ETF in North America, reached a market value of US$333 million in just two days after its issuance, attracting a large amount of liquidity. However, BTCQ and BTCQ.U subsequently launched by 3iQ Coinshares currently surpass Purpose in terms of market value, share and AUM.

3iQ Coinshares’ BTCQ is the fastest AUM to reach 1 billion US dollars, reaching its peak quickly only within three weeks after the issuance (see the light green line in Figure 4). It may be because it is the first digital asset investment fund management company to provide public bitcoin investment fund The Bitcoin Fund (TSX: QBTC) and public ether investment fund The Ether Fund (TSX: QETH.UN). On the one hand, it has a certain customer base and industry recognition. On the other hand, it also allows customers to convert QBTC into 3iQ CoinShares Bitcoin ETF. Compared with closed-end funds, it is more flexible and has won part of the risk exposure from Gray GBTC.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 4. AUM: BTC ETFs VS GBTC Source: Ychart

The volume performance of the Ethereum ETF market (Figure 3) is similar to that of the Bitcoin ETF. 3iQ Coinshares has the largest market capitalization and share. It is worth noting that the market value and share of ETHX.U launched by CI Galaxy surpassed Purpose. The advantage is that the launch time is “the world’s first Ethereum ETF” and has the lowest management fee. In the June bear market, Purpose’s Ethereum ETF (ETHH) did not perform as expected, and AUM fell by 8.6%

“Net Worth Tracking Performance”

From the beginning of 2021 to mid-April, the price of Bitcoin climbed all the way, with an increase of 92.6% at one time. This is an opportunity to greatly increase the recognition of Bitcoin as an investment target for emerging alternative assets under a series of influences such as the global economic setback caused by the global new crown epidemic, the poor performance of traditional investment targets, and the large-scale monetary policies of various countries.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 5. Tracking performance with BTC net worth: BTC ETFs VS GBTC Source: Ychart

Judging from the net worth performance of Canadian ETFs in this bull market (Figure 5), the net worth (NAV) of each ETF is basically in line with the BTC price trend, and the overall volatility is consistent.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 6. Net worth growth rate: BTC ETFs VS GBTC Source: Ychart

Analogous to the traditional financial evaluation standard (tracking deviation) of ETFs, the performance of ETFs can be judged by the difference between the net growth rate of major ETFs and the rate of change in BTC price since the launch of major ETFs (Figure 6).

  • In general, the net growth rate of major ETFs fluctuates within the range of BTC price changes, and GBTC fluctuates more than ETFs.

  • When the ETF was first launched, except for the fluctuation of 3iQ Coinshares which matched the price volatility of BTC, the growth rate of the other three companies was greater than that of BTC. As the price of Bitcoin climbed to the peak to track the trend, it gradually conformed to the rate of change of BTC price.

  • In mid-April, the price of Bitcoin began to fluctuate and callback. CI Galaxy, 3iQ Coinshares and Evolve are less tolerant of volatility, and the growth rate of net value is mostly greater than the rate of change in the BTC price.

  • During the period of currency price fluctuations, the tracking trends of ETFs, including GBTC, gradually conformed to the rate of change of BTC prices. Only Evolve reacted strongly to each large currency price downward fluctuation.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 7. BTC ETF tracking deviation. Source: Research Institute

Combining the tracking deviation (Figure 7), it is easier to see that ETFs have a relatively high deviation in the initial stage of the launch and large changes in the underlying asset market. The reason for the former may be related to market fluctuations caused by the influence of capital and public opinion on the product launch. The latter reflects the better tracking effect when the price of BTC is stable.

In general, Purpose and CI Galaxy have a smaller deviation error, but CI Galaxy’s volatility tolerance is worse than Purpose. Evolve is the worst tolerant of volatility. Although 3iQ Coinshares leads in market capitalization and share, it has the worst tracking stability.

Net worth tracking performance: Purpose>CI Galaxy>Evolve>3iQ Coinshares


Liquidity is the most intuitive way to measure the quality of ETFs.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 8. 30-day average daily trading volume: BTC ETFs VS GBTC Source: Ychart

From the 30-day average daily trading volume (Figure 8), Purpose (1.33M) is far ahead of the other three, but it is still much smaller than GBTC (8.29M). Among them, BTCC.B and BTCC have the largest liquidity fluctuations, but the liquidity is always greater than the other three. On the whole, the liquidity differentiation is serious.

“Discount premium”

The collapse of Bitcoin prices in May of this year led to the simultaneous decline of Canadian Bitcoin ETFs. Although it sounds bad news at first, it actually provides a good idea for the future development of ETFs: that is, the price of Bitcoin ETFs is maintained relative to the value of its underlying assets. stability.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 9. Discount and premium rate: BTC ETFs VS GBTC (left) ETH ETFs VS ETHE (right) Source: Ychart

It can be seen from Figure 9 that the discounts and premiums of the gray scale GBTC and ETHE are both a large premium first and then a large discount, and the range of discounts and premiums is larger than that of Canadian ETFs. The large premium of GBTC in the early stage reflects the large inflow of investors’ capital, and the concentration of holdings in institutional investors (about 93%, data from Grayscale’s 2020 Q4 quarterly report), indicating that institutions have continued to increase interest in the crypto industry or have room for arbitrage.

Comparison of Canadian Bitcoin ETF Market Operation and Grayscale Bitcoin Trust

Figure 10. As the premium of Grayscale Bitcoin Trust flipped to a negative value, the inflow of funds stopped. Source: Skew

The Skew report (Figure 10) shows that at the end of February this year, GBTC entered a discount state, and the inflow of funds also stopped. In the past, the decrease in capital inflows was due to the rise of institutions that weakened the withdrawal of capital or profit-taking after unlocking. The essential reason for this year is, to a certain extent, that faced with the squeeze of Canadian ETF market competition and currency price turmoil panic, GBTC has been in a state of discount for a long time, further reducing the entry of new investors into the market, and the secondary market liquidity rate will decline, thus leading to the primary market. Prices continue to weaken, forming a spiral death.

GBTC also announced the suspension of GBTC for administrative purposes in March. Indeed, Rafael Schultze-Kraft, CTO of on-chain analytics provider Glassnode also believes that as long as existing shares are traded at a discount, there is no point in subscribing for new GBTC shares. The launch time of the Canadian Bitcoin ETF also coincides with the GBTC premium turning from positive to negative, which also shows that funds may have flowed to new compliant products, and it does not mean that institutional interest has weakened.

In other words, in a period of currency price turmoil, compared to the GBTC trading price which was once lower than its net asset value by about 21%, Canadian ETFs maintained good trading capabilities without huge premiums or discounts, and compared the value of the underlying asset. The mapping is also more intuitive. This side reflects the ETF’s ability to cope with the pressure of currency price fluctuations and brings confidence to its passing the SEC review.

At present, the discounts of GBTC and ETHE both exceed 10%. Among Bitcoin ETFs, except for BTCC.U, which is currently at a premium (0.21%), the rest are all discounted within 1%, which is not much different. Purpose’s ETF discounts and premiums fluctuate significantly less than the others. Figure 9 shows that the fluctuation range of the discount and premium of the Ethereum ETF is larger than that of the Bitcoin ETF, and fluctuates in the range of ±2% overall. In contrast, BTC has a higher consensus in the crypto market than ETH, and ETF products are launched earlier and more mature.

Compared with Canada, the United States has never stopped its efforts in digital currency ETF innovation. However, due to regulatory restrictions, there are currently no ETFs that have passed the SEC’s review and release. But as the largest ETF market, the number of ETFs lining up to apply to the SEC has reached a dozen. How will the US Bitcoin ETF develop in the future? Please pay attention to the third article in the Bitcoin ETF popular science series.

Posted by:CoinYuppie,Reprinted with attribution to:
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