Patient Capital, a prominent asset manager with over $1.8 billion in assets under management according to its most recent portfolio holdings report, has filed with the US Securities and Exchange Commission (SEC) seeking permission to allocate up to 15% of its funds to Bitcoin ETFs.
The move comes as the Bitcoin ETF market is experiencing significant inflows, reflecting growing interest from institutional and retail investors in these newly approved index funds.
Patient Capital Shifts Focus To Bitcoin ETFs
According to the filing dated March 11, Patient Capital plans to seek exposure to Bitcoin through investments in exchange-traded products registered under the Securities Act of 1933 and primarily focus on Bitcoin (referred to as “Bitcoin ETPs”).
This marks a shift from the Fund’s previous exposure to Grayscale’s Bitcoin Trust GBTC, which recently converted to a Bitcoin ETF. The Fund will bear its proportionate share of the management fees and other expenses associated with the Bitcoin ETFs, in addition to its direct expenses, and will incur brokerage commissions when trading shares of these ETFs.
While Patient Capital is interested in Bitcoin ETFs, the filing also highlights several concerns regarding the broader cryptocurrency market and Bitcoin itself. The asset manager notes that auditing standards for Bitcoin may differ from those for registered US securities.
The firm highlights the “unregulated nature” and “lack of transparency” surrounding digital asset platforms, which it says can be susceptible to fraud, manipulation, security failures, and operational issues.
In particular, while Patient Capital is willing to participate in the newly launched Bitcoin ETF market, it acknowledges that the value of Bitcoin, and consequently the value of its investment in the Bitcoin ETF market, could be “adversely affected” by these risks.
Warnings Of Regulatory Impact On Crypto Investing
The filing also points out that countries, including the United States, may impose restrictions or even outlaw the future acquisition, use, or sale of Bitcoin. Additionally, the asset manager notes that the regulatory landscape for cryptocurrencies in the US is “still developing,” and ongoing and future regulatory actions could significantly impact the nature of cryptocurrency investments.
Importantly, Patient Capital also acknowledges that the classification of a digital asset as a “security” under federal securities laws remains “complex” and difficult to predict, potentially affecting the asset’s value.
Moreover, Patient Capital acknowledges that market volatility and limited trading activity in the secondary market can result in significant premiums or discounts to the net asset value of Bitcoin ETFs. The firm cautions that the lack of an active trading market for the shares may result in limited market liquidity and potential losses when selling the shares.
In addition, Patient Capital alleges that Bitcoin ETFs have a limited number of authorized participants, market makers, and liquidity providers, which could impact trading dynamics and potentially result in a material discount to net asset value, wider bid-ask spreads, trading halts, and even delisting, according to the company’s statement in the filing.
Patient Capital’s filing to allocate a portion of its fund to Bitcoin ETFs indicates the asset manager’s recognition of increased institutional interest in cryptocurrencies.
However, the filing also underscores the alleged risks associated with the cryptocurrency market, including regulatory uncertainties, market volatility, and limited liquidity.
As of this writing, Bitcoin, the largest cryptocurrency in the market, is trading at $71,500 and has been consolidating above this key level for over 24 hours.
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