FINANCE Bloomberg Businessweek February 8, 202124
PHOTO ILLUSTRATION BY 731. EMOJIS: APPLE. FRIJNS: BANKTRACKbecauseofunevenbetting.Thedisparity,ErisX
andIfrahsay,couldbeeasedbythegamingcom-
panybuyingorsellingfuturescontractsongames
it’sconcernedabout.Sportsbooksmakemoney
chargingfeestobettors,sotheytrytostayasneu-
tralaspossibleinthewagerstheyaccept.
Thetradeswouldworklikethis:Acasinoin
Pennsylvania,say,that’sgettingtoomanybetson
thePhiladelphiaEaglesagainstthePatriotsis ner-
vousthatanEagleswinwillforceit topayout
muchmorethanit’stakenin.Thecasinogoesto
theexchangeandsellscontractsbasedonthegame,
takinga positionthatthePatriotswillwin.Thebuyer
ontheothersidecouldbea sportsbookinNew
Hampshirewiththeoppositeproblem.
Oncea sportsbookmakesa requesttobuyor
sell,it willgotoa centralorderbookwhereother
casinos,vendors,andmarketmakerscouldsee○ OneofthesimplestwaystobuyBitcoinalsohasa quirkthatcouldleadtobiggerlossesTHE BOTTOM LINE Futures could be a way to let legal
sportsbooks even out their exposure to game outcomes, but they
might also lead to even more wagering.Many investors racing to get in on Bitcoin’s big rally
have bet on the cryptocurrency through invest-
ment trusts rather than buying the coins themselves.
These fundlike trusts have some advantages: Their
shares can be bought and sold through ordinary
brokerages without the need to set up digital wal-
lets or move money to a crypto exchange. And some
institutional investors, barred by the rules of their
funds from holding Bitcoin directly, have also turned
to trusts. Cathie Wood, for example, has made the
Grayscale Bitcoin Trust the fourth-largest holding in
her Ark Next Generation Internet ETF.
But the market value of the trusts can swing way
above or below the value of the Bitcoin they hold,
adding a new element of risk for an already vola-
tile investment. Take the $25 billion Grayscale trust.
Demand was so relentless in December that the
trust’s price soared 40% above its net asset value—
that is, the market value of all the Bitcoin it holds.
At the top, investors essentially were indirectly pay-
ing $14,000 for the equivalent of $10,000 in Bitcoin.
That’s bad enough. But when Bitcoin falls, the value“It doesn’t
take a whole
lot of selling
pressure”the offer and agree to the trade. From that point
on the futures can be bought and sold freely by
any of the allowed market participants before the
game starts.
One company that’s agreed to be involved as
a market maker—helping set prices and agreeing
to take the other side of trades—is Susquehanna
International Group. One of the largest options
traders in the world, it also owns a sports betting
business in Ireland, though that’s not involved
in the U.S. futures effort. “It’s such a novel con-
cept that addresses this need when sportsbooks
have reached their limits,” says David Pollard,
head of strategic planning for Susquehanna.
—Robert Schmidt and Ben Bainof trusts like Grayscale could sink below that of their
holdings, further amplifying investor losses.
If Grayscale were an exchange-traded fund, it
would have specialized traders known as authorized
participants who work behind the scenes to make
sure this dislocation doesn’t exist. When prices for
an ETF’s shares get out of whack with the underlying
holdings, these arbitragers push them back in line
through a process that relies on the ETF’s ability to
issue and redeem its own shares to balance supply and
demand. But while it’s possible for a crypto trust to
issue new shares, it has no ability to redeem them—a
key reason the trust’s prices stray from the value of
Bitcoin. “There is no arbitrage mechanism to keep
the price of the shares closely linked to the value of
the underlying cryptocurrency assets,” says Teddy
Fusaro, president of Bitwise Asset Management,
which also runs cryptocurrency trusts.
When investors want to get out of a Bitcoin fund,
they have to find someone else in the market will-
ing to buy their shares. That’s not a problem when
Bitcoin is hot, and in fact traders have mostly been