Psst! You Can Get A Bitcoin ETF Here

While you’re waiting for an exchange-traded crypto fund in the U.S., check out what’s on sale in Toronto or Frankfurt.

The august securities authorities in the U.S. have yet to approve an exchange-traded fund for cryptocurrency. But bitcoin ETFs are up and running in Canada and Europe. You can get your hands on shares, if you know where to look.

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I went hunting for brokerage firms that allow their U.S. customers to buy overseas funds and ran into a lot of closed doors. Vanguard and Morgan Stanley’s E-Trade division don’t allow any trading on foreign exchanges. Charles Schwab lets you buy shares of foreign companies but not foreign funds. Interactive Brokers displays foreign ETFs on its site but forbids U.S. retail clients to buy them.

Fidelity Investments? Eureka. Of nine overseas crypto products on my shopping list, Fidelity has seven for sale to Americans (see table). For reasons it does not elaborate, it won’t let you acquire either of two European-traded CoinShares products shown in the table, although you can get a Canadian fund that is affiliated with CoinShares.

The table includes both ETFs and exchange-traded notes, which are similar to ETFs in market behavior. With either of these legal structures you are trusting the vendor to back up its promises with a stockpile of coins in a well-protected wallet. The notes may also involve the risk of a bankruptcy of the intermediary.

Why are most brokers so squeamish about foreign funds? Evidently they don’t dare offend the Securities & Exchange Commission, which sees itself as the supreme arbiter of what is fit for sale on U.S. soil.

The SEC has spent the last seven years swatting down proposals for U.S.-registered ETFs that would hold either bitcoins or bitcoin futures and give investors a way to redeem their shares at something close to asset value. Stated reason: Bad people might manipulate the price of coins.

And yet the agency tolerates another form of crypto fund, one with no redemption feature. The prototype of this genre is the Grayscale Bitcoin Trust, with $21 billion of investors’ money in it.

There are now many imitators of Grayscale Bitcoin on the loose, some with bitcoins, some with ether, others with blends that include third-tier crypto assets. Lacking an exit door and in some cases an entrance for new money, these products (styled “trusts” rather than “funds,” so as not to incur the SEC’s anger) trade at peculiar and unpredictable discounts to, or premiums over, their asset value.

At the close of stock market trading July 22, Grayscale Bitcoin (GBTC) was priced at a 10% discount to the value of its bitcoins. Some people who own it bought in at a premium. If they get out now, they will have been hosed coming and going. They would be faring better if the fund had been a redeemable ETF all along.

Osprey Bitcoin Trust (OBTC) was at a 36% premium on July 22. Nice, if you already own shares and want to exit. But the SEC is scarcely doing new buyers a favor. They are forced to pay $1.36 for a dollar’s worth of something.

The operators of both the Grayscale and Osprey funds have vowed to convert their products into ETFs as soon as the SEC gives the okay. That probably won’t happen for a while. Tyler Odean, publisher of the crypto watching Something Interesting newsletter on Substack, says the day is a least a year away.

While waiting, you could own one of those foreign ETFs. Aim for one with a lot of assets, and thus a decent amount of trading volume. It’s more likely than a small fund to provide opportunities to get in and out near asset value.

Some of these foreign ETFs are getting traction. Within months of opening this year, during bitcoin’s spring surge, two of the Canadian offerings passed $1 billion in assets.

It’s likely that U.S. investors have discovered ways to get in. This, despite the fact that—in deference to the SEC—vendors lard their web pages with warnings that Americans should keep their distance.

Som Seif is the entrepreneur behind Toronto’s Purpose Investments, a fast-growing collection of unconventional investment products (the line-up includes a marijuana fund and a refundable retirement annuity). He, too, shies away from openly encouraging cross-border purchases. But he estimates that U.S. buyers own a fourth of Purpose Bitcoin shares.

At Fidelity there are a few speed bumps. You have to sign off on some paperwork to get access to foreign bourses, and your first trade is chaperoned via a phone call. But the online commissions are low, a flat $8 to $25 per trade, depending on the exchange. Currency conversion typically runs 0.75% on a $100,000 ante; you can duck that expense by selecting a product quoted in U.S. dollars.

What’s our SEC waiting for? Ostensibly, stronger evidence that speculators are not engaged in bear raids or pump-and-dump schemes. But, at least with mainstream assets like bitcoin and ether, price volatility should be the least of your worries. Here are some bigger risks: the repository of coins backing your fund gets hacked; the funds, sometimes domiciled in sketchy places like the Isle of Jersey or audited by firms with unfamiliar names, become infiltrated by crooks; bitcoin goes out of style and sinks to $12.

Bitwise Asset Management is one of many firms aching to get into the U.S. crypto ETF market when the doors are opened. Says Teddy Fusaro, its president: “It’s frustrating for some investors that the U.S. doesn’t have a fully registered exchange-traded product for cryptocurrency. But the U.S. market is the envy of the world for a reason: best regulatory oversight, clearest rules, most transparent regulator—even if it takes a little longer.”

When the day comes, there may be a flurry of U.S. investors departing from foreign funds to invest in domestic alternatives. To be hoped for: New money brings about a flood of liquidity (that is, tighter bid/ask spreads) and more competition in expense ratios. The sooner, the better.