Cryptocurrency ETFs vs. nonredeemable investment trusts: An in-depth analysis

As cryptocurrencies continue to dominate fintech innovations and gain wider acceptance, there is an escalating demand for investment vehicles that provide convenient access to these complex digital assets. This study presents a comparative analysis of Exchange-Traded Funds (ETFs) and nonredeemable investment trusts in the context of the cryptocurrency market. Using 1,974 daily observations of the Grayscale Bitcoin Trust (GBTC) from May 2015 to March 2023 and 348 daily observations of the ProShares Bitcoin Strategy ETF (BITO) from its inception in October 2021 to March 2023, our results show that non-redeemable trusts can significantly and persistently deviate from their net asset value, while ETFs exhibit better pricing efficiency. Additionally, our analysis reveals that the Bitcoin ETF has superior tracking performance and faster correction of mispricing compared to the nonredeemable Bitcoin investment trust. Our study offers novel empirical insights into the inefficiencies of nonredeemable investment trusts, identifies the drivers of valuation premiums and discounts, and provides empirical support for the notion that ETFs offer a more efficient and effective cryptocurrency investment vehicle. These findings have important implications for investors, portfolio managers, and policymakers.