ETC Group to launch bitcoin ETP on Deutsche Boerse

[fillippone]

As "institutional adoption" and "#phase5" have been the name of the game lately, let's look at how BTCP has performed over last month.


As usual, the price has been following the NAV quite closely, but more importantly, inflows have been quite good during the whole month:



Here a numerical detail of the Bitcoin Inflows:



The growth is organic and accelerating, I m bullish on this.

The wallet is growing too, all the assets are covered.



I wish they changed their stance on the wallet addresses, they never revealed other wallet's addresses. So there is a little (300 BTC) difference between officially held BTC and the public wallet we know. I think it's a pity, as this kind of transparency is a unique feature of BTCE, while other issuers chose not to disclose the addresses.

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[fillippone]

Something unexpected happened yesterday: even if grayscale has been churning record after record, eating up Bitcoins like a Blackhole, BTCE experienced their biggest outflow so far.

According to my spreadsheet, they had a 287 Bitcoin outflow yesterday. The biggest to date.

 

Given they have a tad less than 10,000 BTC as Assets Under Management, this is a significant flow to record.

Of course, it is a healthy check to see outflows from time to time, nevertheless, it is curious, as we witnessed a very close resemblance to Grayscale flows lately (namely: inflows only).

[exstasie]

Of course, it is a healthy check to see outflows from time to time, nevertheless, it is curious, as we witnessed a very close resemblance to Grayscale flows lately (namely: inflows only).

Well, there is a 7-8% premium over spot considering NAV. Maybe someone has stumbled onto an avenue to arbitrage that gap.

Meanwhile, GBTC's premium over spot is up at 30%. In October it was at 8%. That really goes to show the level of interest from institutions over the past couple months!

[fillippone]

Well, there is a 7-8% premium over spot considering NAV. Maybe someone has stumbled onto an avenue to arbitrage that gap.

According to my spreadsheet there hasn't neve been a 7-8% premium over the NAV:



The last data is a spike to 5% and will surely be reabsorbed in the next day(s).
Actually one of the best feature of this ETP is the reduced premium, as often the apparent premium is only due to the lag in the determination of the underlying price compared to the last trade of the fund.

[exstasie]

According to my spreadsheet there hasn't neve been a 7-8% premium over the NAV:



The last data is a spike to 5% and will surely be reabsorbed in the next day(s).

Hmm thanks, maybe I made a mistake trying to account for the forex conversion. It's annoying how shares trade only against EUR but NAV and AUM are calculated in USD. Or I may have calculated using the current intraday spot price when the BTCE market was closed. The historical premium does appear smaller now that I'm looking at the data again.

Actually one of the best feature of this ETP is the reduced premium, as often the apparent premium is only due to the lag in the determination of the underlying price compared to the last trade of the fund.

Why do you think arbitrage is so much more efficient than on GBTC?

[fillippone]

Hmm thanks, maybe I made a mistake trying to account for the forex conversion. It's annoying how shares trade only against EUR but NAV and AUM are calculated in USD. The historical premium does appear smaller now that I'm looking at the data again.

That is is the exact reason why I keep doing spreadsheet. Data do not lie, but it is often difficult not to get lost.

Why do you think arbitrage is so much more efficient than on GBTC?

Thi premium mechanism is hardwired in the GBTC success. Main clients of GBTC are the “whales” that bus shares in the primary markets only to cash in the premium after six months.
BTCE I think is more focused to “retail” investors, or at least they do not differentiate them so harshly.

[fillippone]

As I did suspect it was only a brief blip in the data.
Actually, the jump in the premium was due to a "negative feature" of my spreadsheet, considering the most recent market price, but dragging last available NAV when today NAV is not available yet, so in case of large movement, the NAV is lagging the MArket Price.

	Premium is always aligned with NAV, irrespective of market direction.

Regarding to Flows we notice that the outflow registered on Dec 11th  has been cancelled out by bigger subsequent inflows.

	AUM in BTC has an organic growth, healthy outflows have been quickly recovered.

[exstasie]

Thi premium mechanism is hardwired in the GBTC success. Main clients of GBTC are the “whales” that bus shares in the primary markets only to cash in the premium after six months.
BTCE I think is more focused to “retail” investors, or at least they do not differentiate them so harshly.

I take it BTCE has a redemption mechanism, so share holders can redeem shares either for the underlying BTC or cash equivalent? This should keep the market relatively pegged to spot.

I had actually forgotten, that's the thing about GBTC: investors can't redeem shares. They can only buy in private placement at NAV or sell on the open market, so nobody can efficiently arbitrage the market on the back end the way an ETF typically would be. That's why the premium gets so high.

I honestly thought by now that some institutional traders would be buying in private placement and shorting GBTC to close the gap (free money, right?). But the high premium sustaining probably indicates massive demand for BTC exposure in an equities market with very few options to access it.

[superbvictory]

I've never invested in any German stocks or ETFs and I wonder what would be the tax implications of buying and selling btce. As a foreign investor when I realize any profits, will I have to pay any capital gain tax?

I tried to google German tax law, it's clear that dividends are entitled to 25% withholding tax but I cannot find relevant info whether foreign investors are liable to capital gain tax? If anyone can shed some lights it all be great! I'm very interested in this product but I haven't bought it because I don't know if I'll be taxed!

[fillippone]

I've never invested in any German stocks or ETFs and I wonder what would be the tax implications of buying and selling btce. As a foreign investor when I realize any profits, will I have to pay any capital gain tax?

I tried to google German tax law, it's clear that dividends are entitled to 25% withholding tax but I cannot find relevant info whether foreign investors are liable to capital gain tax? If anyone can shed some lights it all be great! I'm very interested in this product but I haven't bought it because I don't know if I'll be taxed!

If you live in one of the European Countries where this product is passported (List is in OP, but please doublecheck with HanEft Website) you should be able to trade this ETC like any other product, with your home-country fiscal regime.
Otherwise it could be more complicated, with difference not only in taxation, but also in access to this product (like in the UK, for example, where you have to be an institutional investor to buy the shares).

[superbvictory]

I've never invested in any German stocks or ETFs and I wonder what would be the tax implications of buying and selling btce. As a foreign investor when I realize any profits, will I have to pay any capital gain tax?

I tried to google German tax law, it's clear that dividends are entitled to 25% withholding tax but I cannot find relevant info whether foreign investors are liable to capital gain tax? If anyone can shed some lights it all be great! I'm very interested in this product but I haven't bought it because I don't know if I'll be taxed!

If you live in one of the European Countries where this product is passported (List is in OP, but please doublecheck with HanEft Website) you should be able to trade this ETC like any other product, with your home-country fiscal regime.
Otherwise it could be more complicated, with difference not only in taxation, but also in access to this product (like in the UK, for example, where you have to be an institutional investor to buy the shares).

Thanks! I live in Asia and I usually don't have to be worried about capital gain tax investing in like the US market. Just not sure how Germany taxes non European investors...

[fillippone]

<...>
Thanks! I live in Asia and I usually don't have to be worried about capital gain tax investing in like the US market. Just not sure how Germany taxes non European investors...

I think it really depends on the mutual fiscal agreements between your country and Germany. I have the suspect you shouldn’t worry about that, as you mentioned the fact you can buy US stocks without problems.
Problems usually arise with dividend-paying stocks, but this is not the case.

As usual, this is not financial advice, and you should always check the above statement with a local accountant and/or your bank.

[fillippone]

The FT suddenly awakens and publishes an article about the BTCE being quite successful over the last days of the past year:


Bitcoin securities trading surges as investors seek crypto exposure

German exchange-traded product garners volumes matching those of popular European funds

Investors have raced to buy and sell bitcoin-linked securities on both sides of the Atlantic, with one German exchange-traded product garnering trading volumes matching Europe’s most popular funds.

BTCetc Bitcoin Exchange Traded Crypto (BTCE) has recorded average daily trading amounting to €57m in the first 11 days of January, according to data from Deutsche Börse.

The volume growth seems impressive, actually:




Well, we might have something to discover about this.
First, a brief recognition of what has happened; the price has rallied, but as per the prospectus, the premium over the NAV has been tiny all along the ride. The maximum discrepancies have been in the region of 5% maximum

	Graph 1. Mid Market Value and NAV have been almost indistinguishable, while BTC held kept rising due to constant inflow.	Graph 2. Apart form some temporary hiccup, the Premium over the NAV has been barely noticeable 2

I obtained some similar graph from Bloomberg Professional, and they basically confirm my calculations:

	Graph 3. Market Price and Volumes, with a Moving Average outlining the growth in Trading Volumes	Graph 4. In the upper Graph, the premium of the NAV: we see it quite consistently low, apart from overshoot immediately reabsorbed. In the lower Graph we can see the inflows. We see a huge inflows in Jauary. Please note that those values are in USD.

As those graphs are in USD, it would be nice to see how these are morphed when we look at those in BTC, this allows us to look at those inflows without accounting for the rise in BTC price over the last months:



Here we see the same graph of in/outflows we saw on the lower part of Graph 4. You see the information are the same, but the latest inflows are not "stretched" by the market explosion.

[fillippone]

BTCE had a few good days:

	Subsciption have accelerated during last days

BTCE had a few good weeks in 2021, with the last two weeks setting new inflows records.
This is particularly relevant as their main competitor GBTC, has been quite struggling.

Also, they have been tracking the NAV fairly accurately.

	BTCE hasn't never diverged their NAV and market price

It's nice to see at least in Europe there is some serious ETP competitor to Grayscale!

[fillippone]

On Hansetf Website they added a couple of interesting documents.

The first one is the BTCE Product Deck:



A nice read with a brief Bitcoin overview ("Bitcoin101"), an investment case and information about this particular product.



The second documents is a brief description on how a ETP is different from a Trust and a Future.


Both resources are quite useful: added to OP.

[fillippone]

A quick update on the BTCE.

The fund is flourishing, and they are having a very good performance.

First of all, they are tracking the BTC without any hassle, the premium is tiny and the amount of BTC in AUM is constantly growing:




You can barely notice the NAV and MID lines spreading apart, as the premium is virtually non-existent (hear that, GBTC?).

Flowwise, we had a few busy days there:



Recently we had a very big outflow, that was quickly recovered in the following days.

Some investor decided to cash out, apparently.
Luckily the net amount of BTC in the fund was quickly recovered as there were massive incoming flows in the following days.

This is not an error in my chart, as also Bloomberg had a very similar graph:



There you can see in the first panel the NAVV and the mid, in the middle panel there is a graph of the premium, that has always been in the +5%, -4% range, with an average premium of just 0.6%.

In the lower panel, you see the daily inflows. There you can notice the same outflow on March, 5th.

The weird thing is that on the same date, nothing was registered on the blockchain, at the known address of BTCE:



Here above a zoom of the public address. there are no outflows.

The only explanation is that they have other undisclosed addresses where they store their funds, as the total balance of the address is not enough to cover the fund's AUM.


I will try to discover more.

[fillippone]

Eurex has decided to launch futures on this ETN.
Eurex is then going to quote something highly resembling a physical bitcoin future, even if there are a few, not negligible, differences.

Eurex to Launch Bitcoin ETN Futures to Meet ‘Significant Demand’

Eurex, the European derivatives exchange owned by Deutsche Boerse, said it will introduce bitcoin (BTC, +4.91%) exchange-traded note (ETN) futures to meet “significant demand from institutional investors.”

• The move will establish the first regulated market in bitcoin-related derivatives in Europe, Eurex said Friday.
• The contracts will be launched Sept. 13 and be based on the Frankfurt Stock Exchange-listed BTCetc Bitcoin Exchange Traded Crypto (Ticker:BTCE).
• The derivative will give access to the price of bitcoin in a regulated on-exchange and centrally cleared environment, Eurex said.
• According to the firm, BTCE has been one of the most heavily traded contracts on Xetra since its June 2020 introduction.
• The contract will be traded in euros and physically delivered in bitcoin ETNs.
• “The Bitcoin ETN was equivalent to 1/1000th of a bitcoin at launch and is fully backed by and redeemable in bitcoin,” Eurex said.
• “There is significant demand from institutional investors to gain bitcoin exposure in a secure and regulated environment,” said Randolf Roth, a member of the Eurex's executive board.

The most important part is the "Significant Demand".
This is going to be interesting.
Also in the next few days, I am going to update the thread's spreadsheet with updated data. 

[Karartma1]

The initiative will bring Europe's first regulated marketplace for Bitcoin-related financial derivatives.
This setup will allow investors to monitor Bitcoin price movements in a fully regulated, centrally cleared environment based on the transparency of the underlying ETN price.
Crap basically
Both ETFs and ETNs are designed to replicate an underlying asset.
When investing in an ETF, the fund holds the asset it tracks. That asset can be stocks, bonds, gold or other commodities or futures contracts while in contrast, an ETN is more like a bond, or an unsecured debt note issued by an institution.
ETNs have a significant advantage over ETFs in that they lack tracking error.
But, as I said, crap's always crap.

[fillippone]

But, as I said, crap's always crap.

Agree.
Let's look at the half-full glass: it's less crap than using other sub-optimal instruments.
For example, an ETF is crap, but surely is less a crappy instrument than buying MSRT or GBTC to gain exposure to BTC!

[fillippone]

Since we are here, I just updated the spreadsheet (sorry, I wasn't able to fully automate like others) regarding this fund. I had some surprises:

Firstly the AUM in bitcoin and the flows:



The fund had a maximum of almost 24K bitcoin back in April around the time of the price ATH. Then it corrected a little bit to touch a relative low of 16k BTC, never to recover again, even if the price surged back a little bit.

An important aspect is that market has moved quite  a lot lately, but the tracking error never exceeded 4.4%:
.
So I would say the instrument is now in its maturity phase. There is balanced two ways flows in the market, and the NAV-PRICE equivalence has never broken.
This is a very important feature for the investors, who seek reliable, liquid markets.

Hopefully, we will see new improvements in BTC AUM soon.