Two mutual fund companies own 43% of Bitcoin Investment Trust (GBTC), currently the only fund that invests exclusively in the cryptocurrency.
Kinetics Asset Management owns 27.27% of the outstanding shares of Bitcoin Investment Trust, while ARK Investment Management owns 15.82% of the shares outstanding, according to Morningstar Inc. Both companies have spread those holdings among several funds. As of the end of November, for example, ARK Innovation ETF (ARKK) owned 13.69% of Bitcoin Investment Trust. Kinetics Internet No Load (WWWFX) owned 11.22% as of Sept. 30, the latest data available.
Funds try to limit their exposure to any one security, and they have to abide by certain rules set out by the Internal Revenue Service and the Investment Company Act of 1940. But those rules generally apply to the time of purchase: While they could limit the funds from buying additional bitcoins, they wouldn't force them to sell holdings that have dramatically appreciated, as bitcoin has.
Kinetics and ARK shareholders probably aren't objecting to the funds' investment in Bitcoin Investment Trust, which has rocketed to a 1,421% gain this year. Ark Innovation Trust has jumped 85% and Kinetics Internet No Load has soared 49%.
Bitcoin Investment Trust is a grantor trust and owns a set number of bitcoins. It has been so popular with investors that it typically sells for a large premium to the value of its holdings. Average 2017 premium: 58.7%, according to Morningstar.
Any investment selling at a premium to its market value should be treated with caution. The recent introduction of bitcoin futures will now offer a less expensive way for individuals to buy bitcoin. A decline in bitcoin prices, combined with a reduction in the fund's premium would simply make the fall all the worse.