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Goldman Sachs chips into debate as bitcoin market doubles
By Gary McFarlane | Thu, 15th June 2017 - 06:31
The bitcoin goldrush is gathering pace and there is no clearer sign of that than the doubling in size of funds under management in the XBT Provider Bitcoin Tracker (BIT-XBTE), exchange traded note (ETN) available on the Nasdaq Nordic exchange. The fund has grown from $50 million (£39 million) on 1 May to $100 million today.
Jean-Marie Mognetti, head of trading and operations at XBT Provider, said: "In the last 60 days, XBT Provider's exchange traded bitcoin note has experienced unprecedented volume in trading and demand from both retail and institutional investors searching for exposure to bitcoin."
Growth of interest in bitcoin and other cryptocurrencies has taken off this year, as investors eye returns of 200% in bitcoin since the beginning of this year and 3,000% in another fast-growing coin, Ethereum.
The Bitcoin Tracker One and Bitcoin Tracker Euro ETNs are available in Swedish Krona and euros, respectively.
The news follows hot on the heels of US investment bank Goldman Sachs announcing the initiation of analyst coverage of cryptocurrencies in response to demand from clients. It is currently bearish on the bitcoin price, but sees buying opportunities in the $2,330 to $1,915 range. Chief technician Sheba Jafari warned clients against trading near the currency's all-time highs after it breached the $3,000 ceiling earlier this week.
In the note Jafari told clients to be "wary of a near-term top ahead of 3,134. Consider re-establishing bullish exposure between 2,330 and no lower than 1,915".
Also, on Tuesday 13 June, Morgan Stanley released a report – 'Blockchain: Unchained' – in which it further underlined its commitment to exploring the value in the blockchain distributed ledger technology on which cryptocurrencies such as bitcoin are built, but sounded a note of caution regarding the run-up in price, drawing attention to the lack of regulation:
Possible explanations include investors in search of uncorrelated risk assets and technologists looking for incremental security. But governmental acceptance would be required for this to further accelerate, the price of which is regulation.
Its statement is thought to have taken some of the froth off the red-hot market.
At the time of writing, bitcoin is trading at around $2,600 on the Coindesk Bitcoin Price index.
Goldman Sachs says hedge funds have started trading the virtual currency due to the lack of volatility in other asset classes. For the same reason, traders are also being attracted to the cryptocurrency market in increasing numbers. Prices between exchanges vary considerably, offering arbitrage opportunities for day traders.
XBT Provider, owned by asset management group Global Advisors based in Jersey, has also announced that it is teaming up with leading cryptocurrency custodian Xapo, which holds bitcoins securely for its clients, providing services such as vault insurance in addition to wallet and debit card facilities.
The safest way to hold bitcoins is to keep them in so-called cold storage, which in its simplest form means writing the string of characters representing a coin holding on a piece of paper and storing it in multiple physical sites or in a digital wallet not connected to the internet.
Ryan Radloff, head of investor relations at XBT Provider, said of the move: "The addition of Xapo to our infrastructure is a critical step in ensuring that our products remain the most professional bitcoin investment products available to investors globally."
Although the Bitcoin Tracker Euro ETN's prospectus describes it as synthetically replicated, the fund buys bitcoin in order to track price movements and combines that with the issuance of a swap certificate designed to replicate the spot price of the asset. The fund takes the average price on the three most liquid exchanges as this is where price discovery takes place.
Bitcoin Tracker One and Euro ETNs are both approved by the Swedish financial regulator the Finansinspektionen.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.