Crypto Series: XBT's Bitcoin ETN

Bitcoin has had an amazing 2017. The price has risen almost fourfold this year so far and is currently around the $3900 mark. Earlier this month it hit an all-time high of $4950. When you see such big price movements, it's tempting to get involved, but you don't have to buy bitcoin if you don't want to. There is an alternative: a Bitcoin ETN (exchange traded note.)

In particular, there are two Bitcoin ETNs operated by a business called XBT Provider: The XBT Provider Bitcoin Tracker One and the XBT Provider AB Bitcoin Tracker Euro. They're pretty much the same product, one is denominated in euros, the other in Swedish Krone. They're traded on the Nasdaq Stockholm index.

To find out more, I spoke to Ryan Radloff, the head of investor relations with XBT Provider.

Both products track the price of bitcoin with an annual charge of 2.5% a year. Several brokers and platforms are now offering the products to retail investors including Hargreaves Lansdown and Saxo Bank.

A 2.5% charge is far higher than for most exchange traded products but Radloff justified the charge on the basis that Bitcoin is "a frontier asset class" which requires expensive security to handle properly. He also said that no one else currently offers a Bitcoin exchange traded product in the world.

Given the size of the charge you might prefer to own Bitcoin directly, but Radloff said that going for an XBT Provider ETP means you don't have to worry about securing your own bitcoins from hackers. A Bitcoin ETP can also give you protection from tax as the products can be held within a SIPP, although not an ISA. Institutions also like investing via an ETN as custodians don't want to hold bitcoins.

The general case for investing in Bitcoin

Radloff argued that Bitcoin is a "monetary asset" with plenty of room for more growth in spite of the huge price rise we've seen this year. He said that the rough value of all existing gold in the world is around $8.2tn whereas the equivalent figure for Bitcoin is $70bn. And yet Bitcoin is a much more mobile asset than gold, and it can be carried in a USB stick or hard drive. Or a holder can just memorise a 64-digit keycode.

The comparison with gold is interesting. You could argue that gold is only valuable because people say it's valuable. Its only inherent value is for jewellery and if the only demand for gold came from jewellers, the gold price would be much lower. So the value of gold is at least partly cultural.

Radloff told me that we're seeing the beginnings of a Bitcoin culture too. Especially in Japan. In fact, he claimed we've had a 'perfect storm' for bitcoin in Japan. This storm has been driven by four factors:

  • High levels of debt across Japanese society

  • A very tech-savvy society

  • Cash-based culture

  • Mistrust of banking infrastructure

What's more, Radloff said there are now 200,000 stores in Japan that accept Bitcoin as a means of payment. He believes that this growth of a Bitcoin culture in Japan is one of the reasons why Bitcoin's price has risen so much in 2017.

I'm going to interject my opinion here: it's interesting that a bitcoin culture is developing but Bitcoin is still a very different beast from gold. We know that humans have valued gold for thousands of years and that's unlikely to change, but Bitcoin has a much, much shorter track record.

Another argument against Bitcoin is that other cryptocurrencies are emerging. If you just focus on Bitcoins, there's a limit on how many Bitcoins can be mined, so if demand for Bitcoin rises dramatically from here, increased supply can't match the demand. But if you look at the wider cryptocurrency market, there's plenty of opportunity to create new coins and increase overall cryptocurrency money supply.

Radloff countered by saying that a lot of the other crypto assets aren't designed to be money. Some are 'coin capital' which are more akin to debt or equity, others are 'utility tokens' where companies or organisations can issue an entitlement to a service or product via a digital token. That said, Radloff did admit there are some other Bitcoin rivals which are true coins and their supply could increase. However, he said: "Even though other coins are proliferating, bitcoin is strengthening…bitcoin is growing as a reserve currency while the rest of the ecosystem is growing."


Earlier this month, Jamie Dimon, the CEO of JPMorgan Chase said that that bitcoin "is a fraud. It's worse than tulip bulbs. It won't end well. Someone is going to get killed." His comments have pushed down the bitcoin price by around 20%.

In my view, there's at least a chance that Dimon is right. And even if Bitcoin isn't worse than tulip bulbs, it's still devilishly hard to value.

On the other hand, Bitcoin has performed well over the last year and I can see the attraction of a currency that isn't linked to any government or central bank.

If you're sure you want to invest in Bitcoin, I can see the attractions of the XBT Provider products - as long as you can stomach the charges.


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