Arca Set to Launch BTC Trust to Compete with Grayscale
Arca has submitted its application to the Securities and Exchange Commission for approval of its Proposed BTC Trust. The investment firm has decided to set the lowest amount an investor can start with, like $25,000. Meanwhile, Grayscale BTC Trust remains the number one BTC Trust and having about 3% of the total Bitcoin in circulation. Arca should be ready to face competition with Grayscale, the institution that holds the highest amount of Bitcoin. Grayscale holds about 3% out of the 21M BTC available. Besides, the firm has $20b managed assets. As of writing this report, Arca has raised about $100K since Feb. 16 of its announcement.
Arca wants to compete with Grayscale in terms of price
The Price of Grayscale’s BTC Trust seems to be unattractive at the moment. Contrary to investors’ expectations for profit from Grayscale BTC Trust, the asset is trading at a BTC price discount. This has never happened since its inception five years ago. Generally, a trust is profitable if it issues shares which approximately trail BTC prove. A trust will allow investors to benefit from Bitcoin even if they are not holding it at present.
However, one of the drawbacks of a trust is that investors pay management fees, and shares can trade at a premium– a price that is higher than the underlying asset. In other words, the fact that BTC trusts are regulated, investors should be ready to pay higher than the unregulated market.
Furthermore, it should be noted that a BTC trust is also susceptible to volatility in the market. That is, the price of a BTC product will rise and fall in response to Bitcoin’s price. But BTC Trust investors are free from the issue of private keys that Bitcoin holders must-have. Besides, they won’t have to pay taxes compared to others.
Traders and investors are confused on which to choose
Arca specializes in managing substantial cryptocurrencies and engaging in hedge funds for intending investors willing to benefit from the crypto space. At the moment, Arca is focusing on rich investors capable of investing with a minimum of $25K. There is also a “restriction” to the security. That is, investors can’t resell their shares. As for Grayscale, the minimum amount an investor can start with is $50K, and they can’t sell until after six months. However, most investors won’t find the rigid conditions comfortable, especially if the BTC price ranges between $48K and 50K, plunges. Likewise, the inflexibility will limit the amount of BTC available for trading, thereby helping in price stability.
While some investors are worried that Grayscale’s BTC Trust now trades at a discount, others think there is no big deal. Some believe that this can push the BTC price downward. And the situation might prevent Grayscale from further putting more money in BTC. As the largest BTC holder, if Grayscale reduces its Bitcoin demand, the price might fall. According to Peter Schiff, such a condition will reduce the inflow of BTC into Grayscale. He posited that the BTC space requires more buyers to invest in it and allow those who are already holding BTC to sell it and use the money to buy something else. However, some analysts believe that Shiff’s opinion is exaggerated, and a plunge in the price of an asset is one of the typical market characteristics.