BLOCKCHAIN: Crypto Index Fund from Coinbase still not ETF


One of our key predictions for 2018 was the rise of vanilla investment product packages for digital assets. That means we would get to see ETFs and boring-old portfolios, rather than the wild contortions of 2017, where public companies pretended to always be into blockchain to get a crypto halo. And in large part, we put the responsibility for irresponsible retail investment behavior squarely at the feet of American regulators. Instead of a 5 bps ETF with some crypto exposure, we continue to see coin mania and sentiment-driven speculation. 

Coinbase is not standing still, and has announced a subsidiary called Coinbase Asset Management that will oversee a Coinbase Index Fund. While Coinbase has never been one to list a lot of assets, it is disappointing to only see 4 crypto currencies (BTC, ETH, BCH, LTC) in the package. Not to mention that this product comes with a $10,000 minimum and a 2% annual management fee. Looking at crypto assets, 2% may not sound like much given 1000% returns last year. Looking at digital investment management, 2% sounds like 10 times the price of the entire Betterment service. That price is expensive and inefficient, and is another reason why we need an ETF structure.

Last, investors have a track record of experience with the Bitcoin Investment Trust structure (about $2 billion of GBTC), which shows some of the disconnect between holding a crypto asset directly, versus through a wrapper. The wrapper can trade at a discount or a premium to the actual assets it holds. Below you can see that depending on the time period, you would have had quite different return profiles investing in Bitcoin directly versus the investment trust. And at times, you would be buying the fund where the net asset value was 20-30% higher than the value of the holdings in it. The solution for better pricing is more liquidity, not less, and lower fees, not higher.

Source: Autonomous NEXT analysis, Coinmarketcap, Yahoo

Source: Autonomous NEXT analysis, Coinmarketcap, Yahoo