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Merrill Lynch Bans Clients from Investing in Bitcoin Fund

Merrill Lynch, the brokerage arm of Bank of America, has blocked financial advisers and clients from trading in bitcoin-related investments.

The ban extends to clients trading in Grayscale’s Bitcoin Investment Trust, a fund led by bitcoin entrepreneur Barry Silbert. The decision to block access to the fund was due to concerns about the “suitability and eligibility standards of this product,” an internal memo circulated to approximately 17,000 advisers states.

According to the Wall Street Journal, the bank has extended a ban on recently launched bitcoin futures contracts. A WSJ source said Merrill Lynch put the policy in place on Dec. 8, just two days prior to the launch of bitcoin futures by CBOE.

The source also said that existing bitcoin funds cannot be held in fee-based advisory accounts, but can be maintained in brokerage accounts, WSJ adds.

Silbert, a former Wall Street investment banker, told Reuters:

“We look forward to speaking with Merrill Lynch and addressing any questions or concerns they have about the Bitcoin Investment Trust. We are unaware of any similar policies at other brokerage firms.”

The Futures Industry Association (FIA), published an open letter to the CFTC before the launch of bitcoin futures, causing concern over the process in which cryptocurrency futures have come to market. Big banks and brokers including JPMorgan Chase, Citigroup, and Royal Bank of Canada have told clients regarding the denial of access to bitcoin futures, the WSJ report says.

Disclosure: Grayscale Investments is a subsidiary of Digital Currency Group, CoinDesk’s parent company.

Merrill Lynch image via Shutterstock

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Famous Investor Thinks Bitcoin Investment Trust Is Overrated

The first publicly traded, Bitcoin-related investment vehicle, Bitcoin Investment Trust, is up by 1600% in two years.

Bitcoin Investment Trust

The trust currently has reached a market value of $1.8 billion dollars, causing some high-profile investors to raise the alarm bell.

Controversial investor Andrew Left, who is famous for predicting when shares in overvalued companies will take a fall, has said this valuation is “completely ridiculous” and is warning against the structure of the fund, though not necessarily Bitcoin itself.

The trust is run by Grayscale Investments, an investment firm that focuses specifically on digital currencies, and is designed to track the price of Bitcoin. The actual book value of the investment vehicle is around $820 million, based on Bitcoin’s price pushing past $4,700 and the fund holding 174,174 Bitcoins. You therefore have a situation where the market value of the fund is double that of the underlying asset.

One of the fund’s biggest attractions is the ability to trade in the price of Bitcoin, without going through the hassle of actually buying it directly. This is another red-flag for Left, who points out:

“[Grayscale doesn’t] even have insurance for the Bitcoin that they are custodians of.”

The Bitcoin Investment Trust is up by 726% this year on the back of Bitcoin’s record-breaking price increase. Bitcoin’s price only increased by 400% in comparison. The high premium could be a problem for new investors.

The fund is the first of its kind and that plays a big factor in it’s over inflated valuation. However, the cryptocurrency market is evolving fast. Other, similar funds will undoubtedly enter the market, which will put a lot of downward pressure on the valuation of the Bitcoin Investment Trust.