While a U.S.-listed, pure-play bitcoin exchange-traded fund remains the dream of crypto fans, today’s launch of the Simplify U.S. Equity PLUS GBTC ETF (SPBC) gives investors a chance to own the digital asset in a hybrid investment package.

The fund from Simplify Asset Management invests 100% in U.S. equities via a combination of ETFs and futures, while providing a 10% exposure to bitcoin (allocation capped at 15%) via the Grayscale Bitcoin Trust, ticker GBTC.

The vast majority of the fund's equity portion is invested in the iShares Core S&P 500 ETF, which goes by the ticker IVV. The remaining equity allotment comprises futures contracts.

As for the bitcoin exposure, the Grayscale Bitcoin Trust is the world’s largest bitcoin product with assets of $23.8 billion. The trust is a private placement available to accredited investors who can subscribe to the private placement in exchange for shares at a daily net asset value. After a six-month lockup period investors can resell those shares in the secondary market on the OTCQX marketplace, where the shares can be purchased by non-accredited investors. This product has an expense ratio of 2%.

According to GBTC’s sponsor, Grayscale Investments LLC, GBTC’s price has zoomed more than 24,000% since inception in September 2013. The recent plunge in the price of bitcoin has slammed GBTC’s share price by roughly 31% in the past three months, but it’s still up more than 210% during the past year.

Paul Kim, CEO of Simplify, says his company’s new ETF actively rebalances its exposure to the Grayscale Bitcoin Trust to account for the wide premium/discount swings associated with the product. GBTC historically trades at a premium to NAV, and sometimes by huge amounts. That means investors who buy GBTC in the secondary market pay more for their shares than investors who got their shares in the private placement at NAV.

But GBTC currently trades at a discount to NAV, which is advantageous when buying it on the secondary market. “That means we’re acquiring bitcoin via GBTC at a discount,” Kim said. “If GBTC trades at a premium in the future, we can manage the entry and rebalancing both from tax and strategic targeting perspectives, and also from the standpoint of the premium/discount.”

The new Simplify fund charges a fee of 0.50%.

Kim touts bitcoin’s traditionally low correlation to equities and other asset classes. It recently had a slightly positive correlation of about +0.2 to the S&P 500 Index (a reading of +1 is perfect positive correlation between two different assets, -1 represents perfect negative correlation and zero means there’s no correlation between the assets). As such, he posits that the SPBC fund’s 10% bitcoin exposure can provide a degree of diversification to an investor’s S&P 500 allocation through a tax-efficient ’40 Act fund. 

“It’s an onramp to bitcoin exposure. The true diehard crypto investor is already investing in bitcoin on their own, but the vast majority of U.S. investors have yet to invest in crypto,” Kim said, adding that surveys show the majority of financial advisors have been asked about crypto by their clients.

“This ETF offers diversification and potential upside, and allows an advisor to invest their clients in this asset class,” he said.

According to Bloomberg, roughly 10 companies have filed for approval with the Securities and Exchange Commission to launch a bitcoin ETF. The regulator so far has balked, citing the need for greater investor protections. That has made the Grayscale Bitcoin Trust essentially the only game in town among U.S.-listed products featuring bitcoin, though the portfolio of the $5.5 billion Ark Next Generation Internet ETF (ARKW) has a 4.5% allocation to the Grayscale Bitcoin Trust.

Meanwhile, three bitcoin ETFs launched this winter in Canada. The oldest and largest of the three funds, the Purpose Bitcoin ETF (BTCC), began trading in February and has assets of US$700 million. The Evolve Bitcoin ETF (EBIT) has assets of $US 61 million and the CI Galaxy Bitcoin ETF (BTCX) has garnered $US 39 million.

The Simplify U.S. Equity PLUS GBTC ETF is the 12th ETF from Simplify Asset Management, a New York City firm founded last year whose product lineup employs options-based strategies meant to enhance returns and hedge against volatility.