BITO vs. GBTC Compared: Which is Best in July 2024? (2024)

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BITO vs. GBTC… Which isbest inJuly of2024? Neither. Learnwhy!

Two major players have consistently captured the attention ofinstitutional and other Bitcoin investors: BITO (ProShares Bitcoin Strategy ETF) and GBTC (Grayscale Bitcoin Trust).

This article delves into acomprehensive comparison ofBITO and GBTC, aiming toprovide clear insights for both seasoned and novice investors navigating the Bitcoin landscape.

We’ll explore their distinct characteristics, benefits, performance, fees and drawbacks, focusing onhow spot Bitcoin ETFs fit into the broader context ofBitcoin investment strategies.

The ProShares Bitcoin Strategy ETF primarily allocates its investments toBitcoin futures contracts instead ofdirectly investing inBitcoin. Itstands asthe largest and most frequently traded Bitcoin ETF globally, boasting anAUM of$2.1 billion.

With anannual fee of95 basis points, itsees anaverage daily trading volume of20 million shares, highlighting its leading role inthe rally asBitcoin surpasses the $52,000mark.

Since the introduction ofspot rivals, BITO has experienced anet outflow of$254 million, according todata gathered byBloomberg. Until December, BITO had accounted for 92% ofthe trading volume among U.S. Bitcoin-linked ETFs.

Grayscale Bitcoin Trust (GBTC)

The Grayscale Bitcoin Trust, the world’s largest Bitcoin ETF, offers investors the opportunity toinvest inBitcoin asasecurity, circumventing the difficulties associated with the direct purchase, storage, and safekeeping ofBitcoin.

Through Coinbase Custody, the Trust passively possesses realBitcoins. With AUM totaling $22.7 billion, itlevies a1.50% annual fee oninvestors. Onaverage, itexperiences asubstantial daily trading volume, exceeding 26 millionshares.

Despite ALL ofGBTC’s competitors lowering their spot Bitcoin ETF fees just before 10 spot Bitcoin ETFs were approved bythe SEC— GBTC notably did not.

GBTC remains at1.5%— the highest ofanyprovider.

But here’s the twist— what ifItold you that neither BITO nor GBTC isyour best bet?

BITO was one ofthe U.S.'s first ETF’s tooffer exposure toBitcoin futures.

Key aspects:

• Structure: BITO operates asanETF, trading onstock exchanges and offering intradayliquidity.

• Investment Focus: Itprimarily invests inBitcoin futures contracts, not directly inBitcoin.

• Fees: BITO charges amanagement fee, usually lower than GBTC’s fee structure.

• Performance: AsBITO tracks Bitcoin futures, its performance may not precisely mirror the spot price ofBitcoin. It’s influenced bythe futures marketdynamics.

Pros

1. ETF Structure: BITO, being anETF, offers greater liquidity and istraded onmajor stockexchanges. This makes iteasier tobuy and sell during markethours.

2. Lower Fees: Generally, BITO has alower fee structure than GBTC, which ismore cost-effective forinvestors.

3. Regulated Framework: BITO operates within aregulated framework, providing asense ofsecurity for investors wary ofthe unregulated nature ofcryptocurrencies.

4. Futures-Based Exposure: Offers exposure toBitcoin futures, which might bemore appealing for investors looking toavoid the direct volatility ofBitcoin.

Cons

1. Indirect Exposure toBitcoin: Asitinvests infutures contracts, BITO does not provide direct exposure tothe actual price movements ofBitcoin.

2. Futures Market Risks: Futures contracts can introduce contango and backwardation risks, potentially affectingreturns.

3. Active Management Risk: The Fund isactively managed and its performance reflects the investment decisions that ProShare Advisors makes for theFund. ProShare Advisors’ judgments about the Fund’s investments may prove tobeincorrect.

GBTC (Grayscale Bitcoin Trust): AnOverview

GBTC offers investors atraditional investment vehicle togain exposure toBitcoin’s price movements without the challenges ofbuying, storing, and safekeeping Bitcoin directly.

GBTC holds actual Bitcoin asatrust and its shares trade over the counter.

• Structure: GBTC isatrust, not anETF. Ittrades over the counter (OTC) and doesn’t offer the same liquidity asETFs likeBITO.

• Investment Focus: GBTC holds actual Bitcoin, offering more direct exposure toBitcoin’sprice.

• Fees: The annual fee for GBTC tends tobehigher, accounting for security, storage, and insurance ofthe heldBitcoins.

• Performance: GBTC’s price can deviate significantly from the underlying Bitcoin price, often trading atapremium ordiscount.

Pros

1. Direct Exposure toBitcoin: GBTC holds actual Bitcoin, directly exposing its pricemovements.

2. Simplicity: It’s astraightforward way for investors togain exposure toBitcoin without the complexities ofmanaging Bitcoin wallets andkeys.

3. Traditional Investment Vehicle: Asatrust, itcan beheld incertain tax-advantaged accounts, likeIRAs.

Cons

1. Higher Fees: GBTC typically has ahigher fee structure due tothe costs ofsecurely holding physical Bitcoin. Grayscale has BYFAR the highest Bitcoin ETF fee (1.50%) ofany Bitcoin ETF that was approved.

2. Premiums orDiscounts: GBTC can trade atsignificant premiums ordiscounts tothe underlying Bitcoin price, affecting investmentvalue.

3. Less Liquidity: Being anOTC product, itlacks the same level ofliquidity asastandardETF.

   See Also

   Bitcoin Spot ETFs Register Five-Day Withdrawals Streak Ahead of HalvingBitcoin could soar 266% to $250,000 next year if ETF inflows stay strong, Standard Chartered saysiShares Bitcoin Trust ETF | IBITGBTC vs. IBIT vs. FBTC Bitcoin ETFs: A Comprehensive Comparison

4. ETF Conversion Risk: May beforced to“sell & rebuy” Bitcoin aspart ofthe ETF conversion process and may involve capital gains taxes.

Key Comparisons: Fees and Performance

• Performance Metrics: BITO performance istied tothe futures market, which can differ from the spot price ofBitcoin. GBTC’s performance ismore directly correlated with Bitcoin’s worth but also subject topremiums ordiscounts based onmarket demand for theshares.

• Fees Impact: BITO has alower fee structure that isattractive for cost-consciousinvestors. GBTC’s higher fees cater tothe trust’s direct exposure toBitcoin and additional securitymeasures.

Spot Bitcoin ETF Fees and Holdings (AsofJuly 26th, 2024)

• Fee: 0.25% for the first 6 months or$5 billion

• BTC Holdings: 338,127 BTC with Coinbase

• 0.12% fees for first 6 months or$5 billion

• More Information

Grayscale Bitcoin Trust (GBTC)

• Fee: 1.5%

• BTC Holdings: 270,770 BTC with Coinbase

• Held 619K Bitcoin onlaunch

• More Information

Grayscale Bitcoin Mini Trust

• Fee: 0.15%

• GBTC: 10% ofGrayscale Bitcoin Trust (GBTC)— assets invested inthe Bitcoin Mini Trust (BTC)

• More Information

Net Bitcoin ETF Inflows

Total Volume: $1.67B

Total Marketcap: $61.25B

Total AUM: $52.14B

Last Update:July 26, 2024— 1:56 PMUTC

Bitcoin ETF fee information isupdateddaily. For the latest updates, click here.

Important Fee Considerations

Discounted Fees

• Some ETFs may offer discounted fees for alimited period, soinvestors should know theterms.

Trustworthy Companies

• Toensure security and reliability, choose anETF backed byatrusted company with substantial assets under management (AUM).

Want toknown more about spot Bitcoin ETF fees? Check out our complete overview.

BITO vsGBTC Trade-offs

Performance and Concerns

BITO isintricately linked toits futures contracts, which can lead towhat isknown as'roll decay.'

WTH isroll decay?

Roll decay isaphenomenon typically associated with futures-based ETFs like BITO.

• BITO doesn’t invest directly inBitcoin— itholds futures contracts.

• Futures contracts are agreements tobuy orsell the asset atapredetermined future date and price.

• They have expiration dates, and tomaintain exposure toBitcoin.

• BITO must periodically 'roll' its futures contracts tolater-datedones.

The issue ofroll decay arises particularly inamarket situation known as'contango.'

GBTC provides amore direct way togain exposure toBitcoin— itholds realBitcoin. However, its structure asatrust, not anETF, has led tosignificant variances inits trading price compared tothe actual value ofthe Bitcoin itholds.

GBTC initially traded atapremium, but has more recently seen ashift totrading atadiscount, raising concerns about its effectiveness asaninvestment vehicle for Bitcoinexposure.

Widening GBTC Discount and BITO’s Growing Appeal

The GBTC Discount

• The discount onthe Grayscale Bitcoin Trust (GBTC) has been asignificant factor inits performanceevaluation.

• This discount means that GBTC shares trade atalower price than the actual Bitcoin value theyrepresent.

• Over time, the discount has not only persisted but widened, raising concerns about its attractiveness toinvestors.

• Many investors prefer more accurately priced exposure toBitcoin, which GBTC currently struggles toprovide.

BITO’s Growing Appeal

• Incontrast, the ProShares Bitcoin Strategy ETF (BITO) has been gainingappeal.

• BITO attracts those seeking aninvestment product that aligns more closely with traditional ETF structures.

• Despite concerns regarding roll decay, BITO offers aunique type ofexposure toBitcoin that might bemore familiar and appealing totraditionalinvestors.

Why BITO isGaining Popularity

• BITO’s structure asafutures-based ETF avoids some ofthe regulatory and structural challenges faced byGBTC.

• This structure provides adifferent type ofexposure toBitcoin, which might bemore appealing tothose used totraditionalETFs.

For more detailed information onGBTC and BITO, you can visit their respective pages: GBTC and BITO.

BITO’s Performance and Concerns

What isRollDecay?

• Roll decay isacritical concern for BITO investors.

• This phenomenon affects futures-based ETFs like BITO, which invest infutures contracts rather than holding the underlying assetdirectly.

• Futures contracts have set expiration dates, requiring aprocess called 'rolling over, ' where expiring contracts are replaced with newones.

What isContango?

• Inamarket condition known ascontango, future contracts are priced higher than the current spot price oftheasset.

• This can lead tolosses for BITO, asthe ETF might sell futures contracts atalower price and buy new contracts atahigher price, resulting inrolldecay.

BITO vs. GBTC: Volatility Comparison

• Unlike GBTC, BITO’s volatility isinfluenced byfactors inherent inthe futuresmarket.

• GBTC’s volatility istied directly tothe price ofBitcoin, whereas BITO’s isaffected bythe futures contracts itholds and the associated rolldecay.

GBTC Unpredictable Discount: ARisk Factor

Unpredictability ofthe GBTC Discount

• The Grayscale Bitcoin Trust (GBTC) isstructured asatrust that holds Bitcoin, allowing investors togain exposure toBitcoin’s price movements without directly owningBitcoin.

• One significant risk factor isthe GBTC discount orpremium toits net asset value (NAV).

Understanding the Discount and Premium

• The discount orpremium toNAV measures the percentage difference between the trading price ofanETF orclosed-end fund (CEF) and itsNAV.

• This figure iscrucial for assessing how much asecurity’s market price deviates from its actualvalue.

• Itisparticularly significant for closed-end funds, asthey donot create new shares after their initial public offering, leading topotential significant divergence between market price and assetvalue.

GBTC’s Unique Trading Characteristics

• Unlike traditional ETFs, GBTC shares often donot trade inperfect alignment with the NAV ofthe Bitcoin theyhold.

• This discrepancy has led toGBTC trading ateither apremium oradiscount toitsNAV.

Predominantly Trading ataDiscount

• GBTC has predominantly traded atadiscount, meaning its market price islower than the value ofthe Bitcoin per share itrepresents.

• This discount has been notably unpredictable, fluctuating based onvarious factors such asmarket sentiment, investor demand, and regulatory developments.

For more detailed information onGBTC and its pricing dynamics, visit Swan Bitcoin’s analysis.

Top 4 Implications ofGBTC’s Unpredictable Discount

Investment Risk

• Increased Exposure: Investors inGBTC face the dual risk ofBitcoin’s price fluctuations and the variability ofthediscount.

• Potential Underperformance: Even ifBitcoin’s price rises, awidening discount can lead tounderperformance relative todirect Bitcoin investments.

Valuation Challenges

• Complex Valuation: The fluctuating discount complicates the valuation ofGBTC asaninvestment.

• Timing Difficulties: Determining the right entry and exit points becomes more challenging when the discount level isvolatile and seemingly detached from Bitcoin’s market performance.

Market Sentiment Indicator

• Sentiment Barometer: The discount level can act asabarometer for broader market sentiment towardsBitcoin.

• Confidence Indicator: Awidening discount might reflect decreasing confidence orincreasing regulatory concerns, while anarrowing discount could signal growing investoroptimism.

Strategic Considerations

• Buying Opportunities: Adeep discount might present astrategic buying opportunity, assuming itwill eventuallynarrow.

• Selling Signals: Conversely, asmall discount orapremium might indicate agood time tosell.

For more insights into GBTC’s pricing dynamics and investment risks, visit Grayscale Bitcoin Trust.

BITO Structure and Its Impact onPerformance

Unique Structure ofBITO

• Unlike adirect Bitcoin investment oraspot Bitcoin ETF, BITO invests infutures contracts traded onthe Chicago Mercantile Exchange (CME).

• This approach provides exposure toBitcoin’s price movements without the challenges ofholding the actual cryptocurrency, such asstorage and securityconcerns.

Performance Implications

• Roll Decay: The primary concern with BITO’s futures-based structure is'roll decay.'

• Roll Over Process: Roll decay occurs when the fund rolls over expiring futures contracts tolater-dated ones, often atahigher price inacontango marketcondition.

• Performance Lag: This can cause the ETF’s performance tolag behind the actual spot price ofBitcoin, especially inprolonged contango marketconditions.

Factors Influencing BITO’s Tracking Efficiency

• Futures Market Liquidity: Liquidity inthe futures market can impact BITO’s ability toclosely track Bitcoin’sprice.

• Rollover Costs: Varying costs associated with rolling over contracts can affect performance.

• Market Divergence: Occasional divergence between futures and spot prices can lead todisparities inperformance.

Understanding these factors can help investors make informed decisions about investing inBITO and anticipate how its structure might impact performance. For more information, visit CME Group.

The Decision: BITO orGBTC?

BITO and GBTC cater todifferent investor needs and risk appetites…

BITO ispreferable for those seeking anETF structure with lower fees and indirect exposure toBitcoin via futures, while GBTC suits investors seeking direct exposure toBitcoin’s price movements despite potentially higher fees and the risk oftrading atpremiums ordiscounts.

Making the Decision: What toConsider!

• Investment Goals: Consider whether you want direct exposure toBitcoin’s price (GBTC) orprefer the derivatives market (BITO).

• Risk Tolerance: GBTC’s direct exposure toBitcoin’s price can bemorevolatile. BITO’s exposure tofutures may involve different types ofmarketrisks.

• Cost Sensitivity: BITO’s lower fees might bemore appealing iffees are asignificant consideration.

• Liquidity Needs: BITO’s ETF structure provides easier entry and exit points ifyou prioritizeliquidity.

• Account Type: Ifyou’re investing through aparticular account type (like aSwan Bitcoin IRA account), check which product iscompatible.

Swan Bitcoin Daily Series

Every Monday— Friday, Dante Cook releases aBitcoin Daily Show for the latest Bitcoin ETF news. Check out his most recent episodebelow…

With all the complexities and downsides, isthere agreat alternative toBITO and GBTC?

YES!

Don’t settle for mere exposure through afinancial product like BITO orGBTC!

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• [email protected]

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