Patient Capital Seeks Permission to Invest in Bitcoin ETFs
Patient Capital, an asset manager with over $1.8 billion in assets under management, has filed with the US Securities and Exchange Commission (SEC) to allocate up to 15% of its funds to Bitcoin exchange-traded funds (ETFs). This move comes as the Bitcoin ETF market experiences significant inflows and growing interest from institutional and retail investors.
Shifting Focus to Bitcoin ETFs
Patient Capital’s filing, dated March 11, outlines the company’s plans to seek exposure to Bitcoin through investments in exchange-traded products registered under the Securities Act of 1933. The focus will primarily be on Bitcoin ETFs. This marks a shift from the Fund’s previous exposure to Grayscale’s Bitcoin Trust GBTC, which recently converted to a Bitcoin ETF.
The asset manager acknowledges that investing in Bitcoin ETFs comes with certain risks and concerns:
- Auditing standards for Bitcoin may differ from those for registered US securities.
- Digital asset platforms are unregulated and lack transparency, making them susceptible to fraud, manipulation, security failures, and operational issues.
Despite these concerns, Patient Capital is willing to participate in the newly launched Bitcoin ETF market. However, it acknowledges that the value of Bitcoin and its investment in the Bitcoin ETF market could be adversely affected by these risks.
Warnings About Regulatory Impact
Patient Capital’s filing also highlights potential regulatory impact on cryptocurrency investing:
- Countries, including the United States, may impose restrictions or even outlaw the future acquisition, use, or sale of Bitcoin.
- The regulatory landscape for cryptocurrencies in the US is still developing, and ongoing and future regulatory actions could significantly impact cryptocurrency investments.
The classification of a digital asset as a security under federal securities laws is complex and difficult to predict, which could affect its value.
The asset manager also acknowledges the risks associated with market volatility and limited trading activity in the secondary market for Bitcoin ETFs. These factors can result in significant premiums or discounts to the net asset value of the ETFs. Patient Capital cautions that the lack of an active trading market for the shares may result in limited market liquidity and potential losses when selling the shares.
Furthermore, Patient Capital notes that Bitcoin ETFs have a limited number of authorized participants, market makers, and liquidity providers. This limited participation could impact trading dynamics and potentially result in a material discount to net asset value, wider bid-ask spreads, trading halts, and even delisting.
Hot Take: Increased Institutional Interest with Acknowledged Risks
Patient Capital’s filing to allocate a portion of its fund to Bitcoin ETFs indicates its recognition of increased institutional interest in cryptocurrencies. However, it also underscores the alleged risks associated with the cryptocurrency market:
- Regulatory uncertainties
- Market volatility
- Limited liquidity
As of this writing, Bitcoin is trading at $71,500 and has been consolidating above this key level for over 24 hours.
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