MW These two crypto funds may be compelling ways to bet on a Trump election win
By Frances Yue
GDLC may see a 23% return if it converts to an ETF, Fundstrat says
Two crypto funds - Grayscale Investments's Digital Large Cap Fund and Bitwise Asset Management's Bitwise 10 Crypto Index Fund - could provide attractive opportunities to bet on Donald Trump's victory in next month's U.S. presidential election, according to financial-research firm Fundstrat.
On Tuesday, NYSE Arca filed an application with the Securities and Exchange Commission to list the Grayscale Digital Large Cap Fund GDLC on the exchange, applying on Grayscale's behalf to convert the closed-ended fund into an exchange-traded fund.
GDLC is designed to track the CoinDesk Large Cap Select Index, which measures the prices of bitcoin (BTCUSD), ether (ETHUSD), solana (SOLUSD), XRP (XRPUSD) and avalanche (AVAXUSD).
The Grayscale fund, currently traded over the counter, has been trading at a discount to its net asset value. As of Thursday, GDLC was trading at a 18.5% discount to its NAV, according to data from Grayscale.
But if the fund's conversion to an ETF is approved, that discount is expected to disappear, as ETFs have a unique creation and redemption mechanism where authorized participants - usually large institutional investors - buy and sell ETF shares to keep the market price close to the value of the assets held in the portfolio.
Grayscale Bitcoin Trust GBTC and Grayscale Ethereum Trust ETHE also used to trade at discounts to their net asset value before they were converted to ETFs.
Investing in GDLC could be viewed as a so-called Trump trade, or an opportunity to bet on a Trump election victory, wrote Sean Farrell, head of digital-asset strategy at Fundstrat, in a Thursday note.
The current iteration of the SEC is likely to reject Grayscale's application to convert GDLC into an ETF, Farrell noted. However, if Trump is elected, an SEC under his administration may approve the application, as the former president is seen to be much more friendly to the crypto sector, Farrell observed.
The SEC under the Biden administration has signed off on ETFs investing directly in bitcoin and ether, but has yet to clear any ETFs linked to smaller cryptocurrencies. The agency in August rejected 19b-4 applications by the Cboe BZX Exchange to list spot solana ETFs on behalf of prospective issuers VanEck and 21Shares.
If GDLC were to be converted to an ETF and its price converged on its net asset value, the fund would be expected to see a 23% return, assuming there is no appreciation in the underlying assets, noted Farrell.
Bitwise's similarly constructed multiasset fund BITW, which tracks an index comprising the 10 most highly valued cryptocurrencies, may also be used as a Trump trade as well if the asset manager applies to convert it into an ETF, Farrell added.
BITW is currently trading at a 24% discount to its net asset value, according to data from Bitwise. If the fund's market price were to converge to its NAV, it could see a 37% return, excluding price appreciation in the underlying assets, said Farrell.
-Frances Yue
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October 18, 2024 16:01 ET (20:01 GMT)
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