On prices and premiums of Bitcoin Investment Trust

ABSTRACT

We investigate the long run relationship and the short run dynamic between the price and the NAV of Bitcoin Investment Trust (BIT), the world’s first publicly traded bitcoin fund. We examine whether the price and the NAV are cointegrated. We also investigate how the price and the NAV adjust to short-term deviations from long run relationship. Our results find that both the price and the NAV are cointegrated despite significant price premium over the NAV. Further, we find that the BIT prices adjust partially to the short-term deviations while the NAV does not react. The results may provide valuable insight to regulatory bodies when they consider the approval of bitcoin or cryptocurrency ETFs.

KEYWORDS:

• Bitcoin Investment Trust
• Exchange-traded funds (ETFs)
• cointegration
• error correction

JEL CLASSIFICATION:

• G10
• G12

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ https://greyscale.co/bitcoin-trust/.

² https://tradeblock.com/markets/indices/.

³ Almudhaf (2018) studies the period when Bitcoin is in the bull market (from 4 May 2015 to 18 November 2016).

⁴ Bitcoin hit its record high of $19,783.21 on 17 December 2017.