Back in November, Osprey Funds announced its intention to list the Osprey Bitcoin Trust on the over-the-counter market, essentially indicating the company’s desire to make it available to the retail investor.
This week, it officially happened.
The Osprey Bitcoin Trust (OBTC) has begun trading, effectively announcing its intention to take on the $33 billion Grayscale Bitcoin Trust (GBTC) by competing on price.
GBTC, which has been the vehicle of choice for those wishing to add bitcoin exposure to their portfolios without going through the process of establishing a cryptocurrency wallet, currently charges a 2% annual fee. OBTC is listed at just 0.49%, making it a substantially cheaper option.
OBTC actually isn’t a brand new product. It was officially launched back in 2019, but was only available to high net worth investors before this week. It currently stands at around $86 million in assets with most of that coming from the institutional crowd.
I’ve noted before that, like GBTC, trading over-the-counter can mean significant disconnects between the trading price and the underlying NAV. GBTC has traded at a premium throughout its life, which currently stands at around 20% above NAV.
OBTC is doing the same thing, which shouldn’t be surprising. Shiny new products tend to get a lot of interest at their launch and Osprey’s new bitcoin trust is no exception.
The premium to NAV, however, is exceptionally high. I’d expect OBTC to build its asset base from here, probably quickly and substantially, but there’s absolutely no value here if you’re paying $3 for every $1 worth of bitcoin. Part of that is probably due to some pricing inefficiencies that typically come with a newly traded security, but OBTC has traded nearly 50,000 shares during the morning hours of Thursday. That should be enough to narrow the premium, but thus far it hasn’t helped.
How interested should retail traders be in OBTC? There’s certainly a significant amount of assets in GBTC and I’d expect some of that to begin migrating over to its lower cost alternative. I think this could get a lot of attention from a group that have become heavy traders this year – the Robinhooders.
The mania over GameStop and other short squeeze candidates has mostly subsided, but there’s clearly a high degree of interest in shiny objects here. It doesn’t get nearly as much attention as when they trade in leveraged VIX products (TVIX, at one point, was the most traded security on Robinhood), but there actually has been some history in leaning towards cheaper products. ETFs, such as the Vanguard S&P 500 ETF (VOO), has seen a good amount of interest being the cheaper alternative to the SPDR S&P 500 ETF (SPY). With as wide of a disparity as there is between the expense ratios of OBTC and GBTC, I’d expect the Robinhood traders to pick up on this and begin buying up shares.
Given the high level of interest in bitcoin right now, I think OBTC moves over the $1 billion mark in total assets in relatively short order. Osprey also has the advantage of getting its trust out on the OTC market ahead of both Bitwise and BlockFi, two other companies looking to do the same thing as Osprey. While expected to be cheaper than GBTC, the proposed expense ratios of those two products are still expected to be much higher than the 0.49% of OBTC.
I think Osprey might have a winner on its hands.