TL;DR
Grayscale Bitcoin Trust (GBTC), launched in 2013, is a digital currency asset management product that offers Bitcoin exposure and trades from brokerage accounts, managing over $16 billion in assets as of October 2023.
GBTC operates as an investment trust, pooling investor assets to invest in Bitcoin, mirroring its value, and charging a 2% fee for crypto management and storage.
GBTC Premium/Discount to NAV represents the difference between GBTC's market price and Bitcoin's net asset value per share.
Traded on the OTCQX stock market since 2013, GBTC is suitable for investors preferring not to manage their crypto, unlike Bitcoin, which is traded on various exchanges and held in wallets or centralized exchanges.
What Is Grayscale Bitcoin Trust (GBTC)?
Grayscale is a digital currency asset management company founded in 2013. Since then, the company has been a provider of various crypto funds, from BTC, ETH, and Ripple to Zcash.
Consequently, it is a no-brainer that, nowadays, they are in the race towards the spot Bitcoin ETF registration for this digital currency investment product.
GBTC was the first cryptocurrency product where investors could gain exposure to Bitcoin and trade it from their brokerage accounts. As of October 2023, it managed over $16 billion in assets, with a market price of over $20 per share and holdings per share value of over $24.
It was introduced in 2013, years before Canadian Bitcoin ETFs and American Bitcoin futures ETFs achieved approval from regulatory agencies. Grayscale is a money maker for the parent business Digital Currency Group, run by Barry Silbert.
GBTC Investment Trust
Investment trusts are closed-end investments with a fixed number of shares. They offer diversification by pooling assets from multiple investors and investing them in a variety of assets. These trusts are managed by professionals and are desirable for investors who may lack knowledge of portfolio management. Investors can also borrow against their investments, potentially increasing gains but also risks. Lastly, these trusts may yield higher dividends compared to other investments.
The Grayscale Bitcoin Trust (as well as other related products) was an attempt to make crypto more accessible to a wider audience. GBTC has been publicly traded on the over-the-counter market OTCQX under the Alternative Reporting Standard for businesses that are not required to register with the U.S. Securities and Exchange Commission (SEC).
GBTC's value mirrors Bitcoin as it's derived from this cryptocurrency. Its tradability on the traditional stock market attracts investors wary of crypto. The fund manages and stores crypto for its investors, using cold storage and charging a 2% fee. As it's regulated, it's a safer option for investors concerned about the tax implications of crypto investments.
GBTC Premium/Discount to NAV
This is a key concept to understand before you invest in GBTC. The GBTC Premium/Discount to NAV refers to the difference between the market price of Grayscale Bitcoin Trust (GBTC) shares and the underlying Bitcoin's net asset value (NAV) per share.
If GBTC shares are trading at a price higher than the NAV, it's said to be at a "premium." On the other hand, if the GBTC stock is trading at a price lower than the NAV, it's at a "discount." This difference can be due to factors like supply and demand, investor sentiment, or market speculation.
This GBTC premium/discount works similar to the Crypto Fear and Greed Index, which showcases the market sentiment prevalent among crypto investors. A GBTC discount indicates a negative sentiment, while a GBTC premium could indicate a potential profit, depending on when you entered the market.
These parameters significantly influence the returns on investment (ROI), so you should take them into strong consideration.
GBTC vs. BTC: Key Differences
If you are now wondering what aspects to consider when looking for your next perfect investment, we have you covered. Let’s see how these investment vehicles differ and what exactly makes them unique in their own right.
Trading GBTC vs. Trading BTC
GBTC vs. BTC - Past 1 Year Performance | Source: TradingView
GBTC has been traded on the OTCQX stock market since 2013, with its trading volume varying based on factors like market sentiment and Bitcoin's price performance. It uses the discount/premium to NAV indicator to estimate performance. As of mid-October 2023, it had a negative premium rate of 15.87%, which means that the GBTC stock price is around 15.87% per share lower than the market price of Bitcoin.
On the other hand, Bitcoin can be traded on both CEXs and DEXs, depending on your risk tolerance, expertise, and preferences. Centralized exchanges require KYC identification and hold your crypto, while decentralized exchanges allow direct trades from your wallet.
Grayscale Bitcoin Trust Worth vs. Bitcoin Worth
GBTC's worth is derived from its underlying asset, Bitcoin (BTC), and is influenced by market conditions like supply and demand. The Premium/Discount to NAV is a crucial factor to consider when investing.
On the other hand, Bitcoin's value is determined by scarcity and demand, with its price set by what people are willing to pay. Bitcoin's supply increases with each new block added to the blockchain, and it operates without intermediary banks or governmental support.
GBTC vs. BTC: Holding and Managing
GBTC is an ideal choice for investors not wanting to manage their crypto, and it can be tracked and bought through various accounts or platforms with access to OTC markets.
On the other hand, you can hold or manage BTC in a personal wallet (hot or cold) or on a centralized exchange.
Where the crypto will be held depends solely on the investor. Holding a larger amount of Bitcoin should require the safest, so-called "cold storage", where the funds are in no contact with the blockchain (or the internet altogether, for that matter). Cold storage entails flash drive-like devices or paper wallets.
Read more about the safest way to store your crypto assets.
GBTC Regulation vs. BTC Regulation
GBTC and other investment vehicles can be regulated by the SEC.
While GBTC is not exactly directly regulated by the SEC, Grayscale is an SEC-reporting company with the intention to be fully regulated after being transformed into an ETF.
Bitcoin, used for global transactions, has prompted lawmakers to propose legislation under anti-money laundering and counter-terrorism financing laws. Bitcoin usage guidelines exist in the US, but regulations are unclear as of October 2023.
Bitcoin is taxable, and you should register with the US Treasury if you own or trade Bitcoin in the US. Always check local rules for owning or trading crypto, as it's illegal in some countries.
Note: Even though the article represents a comprehensive and detailed explanation of both GBTC and BTC and its regulatory state, you should regularly inform yourself on that matter. The state of affairs is constantly changing, so monitoring the upcoming decisions would be a good idea.
How to Invest in Grayscale Bitcoin Trust
You can invest in Grayscale Bitcoin Trust (GBTC) through traditional brokerage accounts. Here's a step-by-step guide:
Select a Brokerage: Choose a brokerage platform that offers access to the OTC (Over-the-Counter) markets where GBTC is traded. Popular options include Fidelity, Charles Schwab, and E*TRADE.
Open an Account: If you don't already have an account with your chosen brokerage, you'll need to open one. This usually involves providing personal information and funding your account.
Research GBTC: Before investing, research GBTC and understand how it works. You must review the premium or discount to the underlying Bitcoin price, which can fluctuate.
Place an Order: Once you fund your account, log in to your brokerage platform and search for GBTC. Specify the number of shares you want to purchase, and place an order to buy GBTC shares.
Monitor Your Investment: After purchasing GBTC shares, keep an eye on your investment. GBTC's price can vary from the actual Bitcoin price due to premiums or discounts.
Selling GBTC: You can sell your GBTC shares through your brokerage account in a similar manner to buying.
Tax Implications: Be aware of the tax implications of investing in GBTC. Consult a tax professional for guidance on reporting your gains or losses.
Note: GBTC may trade at a premium or discount to the actual value of Bitcoin, and it's subject to market fluctuations. Additionally, the availability of GBTC on brokerage platforms may vary, so check with your chosen brokerage to ensure it's offered.
GBTC Stock Price: Historical Performance
Daily GBTC Premium/Discount to NAV | Source: TheBlock
As of mid-October 2023, the GBTC discount, measured as the difference between GBTC premium and NAV, has narrowed to under 16%. This is a significant decline, considering this figure stood at just over 45% in January 2023. The narrowing of the gap is the result of enthusiasm in financial markets over news that the SEC would not appeal a court’s decision to grant Grayscale's request to convert GBTC into a spot Bitcoin ETF.
Pros and Cons of Investing in GBTC Stock
Grayscale Bitcoin Trust (GBTC) is a popular investment vehicle for gaining exposure to Bitcoin. Still, it comes with its own set of advantages and disadvantages.
Aspect | Grayscale Bitcoin Trust (GBTC) | Bitcoin (BTC) |
Accessibility | Convenient entry point into cryptocurrency investing. | Requires setting up a digital wallet and purchasing from cryptocurrency exchanges. |
Tax Efficiency | Considered tax-efficient. Simplifies tax reporting. | Requires individual management of tax reporting for capital gains. |
Liquidity | Easily bought and sold on the OTCQX market. | Trading occurs on various cryptocurrency exchanges with varying liquidity. |
Safety and Security | Offers a hassle-free and secure way to invest in Bitcoin. | Requires securing private keys and managing wallet security. |
Management Fees | Charges management fees that can impact returns. | No management fees but potential trading fees on exchanges. |
Regulatory Oversight | Overseen by the SEC, adding regulatory oversight. | Decentralized and less regulated. |
Performance Tracking | May not fully track the price of Bitcoin, leading to underperformance. | Direct ownership allows you to benefit fully from Bitcoin price movements. |
Market Premium/Discount | Trades at premiums or discounts compared to the actual Bitcoin price. | No premiums or discounts; BTC price directly reflects the market. |
Grayscale vs. SEC Lawsuit: Impact on Spot Bitcoin ETF
The Grayscale vs. SEC lawsuit had a significant impact on the potential approval of a spot Bitcoin ETF. In this legal battle, Grayscale sought approval for a spot Bitcoin ETF. It sued the SEC, alleging that the agency had previously approved certain surveillance agreements to prevent fraud in Bitcoin futures.
The outcome was a victory for Grayscale in August 2023. The court's panel of judges ruled in favor of Grayscale, stating that its proposed Bitcoin ETF is "materially similar" to the approved Bitcoin futures ETFs. This decision has reshaped the landscape of cryptocurrency regulations and market accessibility.
The implications of this ruling are significant. It sets a precedent that could pave the way for the approval of a spot Bitcoin ETF, which would allow investors to gain direct exposure to Bitcoin without the need for futures contracts. This could open up new opportunities for investors and further mainstream adoption of Bitcoin.
While the US SEC lawsuit against Grayscale’s application to convert GBTC into a spot Bitcoin ETF widened the gap between GBTC premium/discount and NAV at the start of 2023, investors cheered SEC's decision to not appeal against the court ruling by mid-October.
This development helped narrow the gap in this figure from above 45% to under 16% by mid-October. Investors and analysts expect this decision to suggest a potential approval of Grayscale’s application by the SEC, indicating that the GBTC investment product could convert to a Grayscale spot Bitcoin ETF soon.
Alternatives to GBTC as an Investment
There are several alternatives to Grayscale Bitcoin Trust (GBTC) as an investment for gaining exposure to cryptocurrencies:
Bitcoin ETFs
Bitcoin exchange-traded funds (ETFs) offer a way to invest in Bitcoin indirectly through traditional brokerage accounts. These ETFs aim to track the price of Bitcoin and provide investors with a liquid and regulated option for Bitcoin exposure. Some popular Bitcoin ETFs include Purpose Bitcoin ETF (BTCC) and Evolve Bitcoin ETF (EBIT).
Cryptocurrency Funds
Cryptocurrency funds are managed portfolios of various cryptocurrencies. These funds can offer diversification across multiple digital assets and are typically managed by professionals. Examples include the Bitwise 10 Crypto Index Fund and the Grayscale Digital Large Cap Fund.
Individual Cryptocurrency Investments
You can also choose to buy and hold individual cryptocurrencies like Bitcoin, Ethereum, or other digital assets via platforms like KuCoin. This approach provides direct ownership of Bitcoin and other crypto assets.
In addition, you can access multiple options to profit from crypto investing, including spot trading, futures trading, trading bots, and P2P trading. You can also enjoy multiple passive income generation opportunities, such as Earn and Crypto Lending on KuCoin.
Cryptocurrency Mining Stocks
Some companies are involved in cryptocurrency mining and related services. Investing in these stocks provides exposure to the cryptocurrency industry. Companies like Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) are examples of such stocks.
Here's more information on crypto mining.
Crypto-related Stocks
Some publicly traded companies are heavily involved in the blockchain and cryptocurrency space without being directly involved in cryptocurrency mining. These companies may offer a different way to gain exposure to the industry. Examples include Coinbase (COIN) and Square (SQ).
It's essential to conduct thorough research and consider your investment goals, risk tolerance, and investment horizon when choosing an alternative to GBTC or any other investment in the cryptocurrency space. Each option comes with its own set of advantages and risks, so it's crucial to make informed investment decisions.
The Future of Grayscale Bitcoin Trust (GBTC)
It seems like the opinions are varied. Some observe GBTC as a safe investment, but others are worried that the persistent discount at which the fund is trading is due to the absence of a redemption mechanism. Grayscale has taken this step due to regulatory concerns, and users are waiting for its status to be upgraded to an ETF.
Others are arguing about the importance of direct Bitcoin ownership. The whole point of crypto in the first place was for it to be considered as a totally private asset controlled only by the user.
Some do not entertain the idea of someone keeping the BTC from you, not allowing you to actively participate in the market and utilize your bought crypto to its fullest potential. The autonomy aspect of crypto is paramount in the crypto sphere, so it is not strange that many crypto enthusiasts hold this opinion.
Consequently, after all the talk about the rise of ETFs, many are optimistic about the GBTC’s potential. If the transformation occurs, the shares would not be sold at a discount and thus gain back the necessary confidence in GBTC. This step could activate the lost faith in the trust after losing it during the FTX saga.
Many people still have trust in traditional finance, and we are not seeing it going away anytime soon.
FAQs on Grayscale Bitcoin Trust (GBTC)
1. What Is the Management Fee of GBTC?
GBTC management fees represent 2% of the investment. The investment managers claim that the fee is lower in nature since it doesn't cover the management, operational, administration, and storage costs.
2. How Long Can I Keep My GBTC Investment?
The duration for which you can keep your Grayscale Bitcoin Trust (GBTC) investment is not set by a fixed time frame or maturity date. GBTC is structured as a trust and operates as an open-end investment vehicle. As an investor in GBTC, you have the flexibility to hold your investment for as long as you prefer. You can choose to hold your GBTC shares for the short term or the long term based on your investment goals and objectives.
3. How Many Bitcoins Does the GBTC Trust Own?
There is no current information about the exact number, but they disclosed the amount in 2022 — a staggering amount of 636,696 BTC.
4. What's the Difference Between GBTC's Market Price and Net Asset Value (NAV)?
GBTC often trades at a premium or discount to its Net Asset Value (NAV). This difference can affect the return on investment. Investors should pay attention to this premium or discount when buying or selling GBTC shares.
5. Is GBTC the Same as Owning Actual Bitcoin?
No, owning GBTC shares is not the same as holding Bitcoin. GBTC provides indirect exposure to Bitcoin's price, while owning Bitcoin means having direct ownership of the cryptocurrency. The two have different advantages and disadvantages.
