This would combine the ridiculous volatility of bitcoin with the all-day tradeability of an ETF. What could go wrong?
Except the Bitcoin ETF isn't leveraged like the example ETF. To borrow a term from your linked article, "It’s a wolf in wolf’s clothing." The example ETF is designed to be volatile, it is clear up front, and anyone investing knows it. The Bitcoin ETF isn't designed to be volatile, it just is because of the volatility of Bitcoin. If the Bitcoin ETF is marketed as a buy and hold type investment, then the volatility is a problem.
>Leveraged and inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments.
[1] - http://www.direxioninvestments.com/products/direxion-daily-j...
It makes the volatility clear. It tells you not to buy and hold. Would a Bitcoin ETF have those same type of warnings?
>...should not be expected to track the underlying index over periods longer than one day.
You shouldn't hold a leveraged ETF for very long because it will become unhinged from a layman's expectation of performance. AKA if I buy $SSO this morning and sell it this afternoon, I will get double the S&P's returns. If I buy $SSO this morning and sell it in June, I may get 1.5x returns or 2.5x returns or anything in between.
This bitcoin ETF won't behave like that so it should be fine, it's a volatile investment, investors should do their DD.
No need to speculate. The answer is yes, the COIN ETF has all the appropriate warnings. The risks are quite clearly spelled out in the S-1 as is standard with these sorts of things: https://www.sec.gov/Archives/edgar/data/1579346/000119312517...
GBTC [0] has been trading since March 2015 [1], as of today is up 714% since inception [2]. My understanding is that nothing serious has gone wrong, so far, in nearly two years.
Also, for some, "ridiculous volatility" is a desirable feature for some portion of their portfolio.
[0] https://grayscale.co/bitcoin-investment-trust/ [1] http://www.investopedia.com/articles/investing/073015/bitcoi... [2] https://grayscale.co/bitcoin-investment-trust/#market-perfor...
GBTC is a bad way to trade bitcoin and the chart in reference [2] you posted shows exactly why. A good BTC tracking ETF would have NAV = market cap, but here you can see that NAV and market cap are unlinked (as are returns for GBTC vs bitcoin) and people are generally paying way over NAV (in some cases over 50%!) to own GBTC. This is presumably due to unsophisticated traders buying GBTC without understanding that they're getting a terrible deal.
In summary, yes something is seriously wrong with GBTC and has been wrong for the entire life of the product.
To clarify, I'm not saying I'd touch GBTC. I certainly would not ever buy it. Nor would I consider buying any ETF or ETN claiming exposure to Bitcoin. I have no desire to shoulder such substantial counterparty risk, fees, and tracking risk (among many other issues, these are simply my top three).
I agree that GBTC is a terrible way to trade Bitcoin. Same as how many other ETFs, ETNs, mutual funds, and other financially engineered products are fantastically terrible ways to gain exposure to various assets. They apparently meet some people's needs, though. I don't understand it, but so what? I don't judge. Good for them.
Unlinked is putting it mildly. The gigantic rally in bitcoin after the drawdown in January was almost entirely missed by GBTC. For example if you bought on 01/11/17 and sold on 02/02/17, instead of enjoying the 29% gains of bitcoin (~$778 to ~$1004), you were treated to a loss of 1% ($109.50 to $108.50).
http://www.coindesk.com/okcoin-international-markets-margin-...