Last Updated on February 15, 2024 by Ben
Bitcoin has been steadily increasing in popularity over the last few years. If you are considering an investment opportunity, GBTC might be the right one for you. But what is GBTC, and how does it work? Is GBTC a Good Way to Invest in Bitcoin?
In this article, we will explore those questions so you can decide if GBTC is a good way to invest your money.
What is GBTC?
The Grayscale Bitcoin Trust or GBTC is a digital currency investment. It can be bought and sold in the brokerage account of an individual investor.
The Bitcoin Investment Trust offers up the opportunity to bet on bitcoin by buying its shares. With this Trust, a person gets access to the cryptocurrency custodian service Xapo in order to keep their bitcoins safe and sound. Owning each share is equivalent to owning approximately 0.092 bitcoin, which will gradually decrease over time as management fees are charged against it.
In 2020, the Trust became an SEC reporting company and registered its shares with the Commission. This will allow accredited investors who purchase shares during their private placement to have a more accessible liquidity opportunity as they are able to sell after six months of holding period instead of 12 months according to regulations set by SEC rules.
The Grayscale Investment Trust, formerly known as The Bitcoin Investment Trust, was launched in 2013 and later became publicly available.
This means that people who invest in the Trust can buy and sell shares of it. They’re given a symbol like GBTC. The Trust is not an ETF, but it’s modeled on other popular investments such as SPDR Gold Trust, which is a physically-backed ETF.
What Products Does Grayscale Investment Offer?
Grayscale provides investors with different trusts that track many kinds of cryptocurrencies including;
- Grayscale Ethereum Classic Trust (ETCG)
- Grayscale Bitcoin Cash Trust (BCHG)
- Grayscale Ethereum Trust (ETHE)
- Grayscale Horizon Trust
- Grayscale Litecoin Trust (LTCN)
- Grayscale Zcash Trust
- Grayscale Stellar Lumens Trust
Diversify your portfolio with cryptocurrencies. Grayscale offers the Digital Large Cap Fund to accredited investors, allowing you to invest in a basket of cryptos and avoid risk by spreading out across multiple assets.
Bitcoin, bitcoin cash, litecoin, and ether are all part of the Grayscale Bitcoin Trust fund. It also included XRP, but following an SEC lawsuit against Ripple over its security status, this was changed to exclude any involvement with them.
Is GBTC a Good Buy? – Understanding the GBTC Premium
GBTC can be a viable buy for casual investors who don’t want to trade cryptocurrency on an exchange but do want the opportunity to bet on Bitcoin. It is traded at a premium – sometimes intense – in times of high demand and low supply (high interest).
The premium, which is then computed by the difference in the market price and the Native Asset Value(NAV), can be very off-putting paired with volatility. However, if you ponder about it more carefully than this, it could also result in profits beyond what Bitcoin itself offers.
Buying GBTC at a high premium is riskier than buying Bitcoin.
However, there are some reasons to choose GBTC over Bitcoin. If you invest in GBTC when the premium is low, or Bitcoin is bullish (so that the premium increase does not make a difference), you can always outpace BTC gains with GBTC.
In short, the premium is an indicator. The rule is that if the NAV-premium divergence becomes greater (the premium becomes higher), it is Bullish. If the NAV-premium convergence becomes lower, it is Bearish.
Advantages and Disadvantages of the GBTC
Advantages
Think about these reasons why invest in GBTC anyway.
- When you trade Bitcoin, you might pay fees. The fees can be more than the 2% fee for the Trust. But if your broker pays no fees, GBTC might be cheaper in this way.
- The only Bitcoin stock on the market is GBTC. You can either buy it or not.
- Buying GBTC is like buying shares in a fund that invests in bitcoins. This investment gives you the opportunity to invest without any of the normal difficulties with using cryptocurrencies, such as locating a digital wallet and then trusting an exchange to use their own account with limited funds.
- Sometimes the premium can work in a trader’s favor. If you purchase when the premium is low and wait until it is high, you might do better than Bitcoin with GBTC.
- The Grayscale Bitcoin Trust is a way to invest in cryptocurrency without needing to understand the technology.
- Grayscale is backed by Bitcoin. The safety of the product and an increase in the price of Bitcoin will happen when Grayscale buys up the market.
Disadvantages
GBTC is a company with many risks. Be careful of these:
- Grayscale Bitcoin Trust charges a yearly 2% fee to own shares.
- The Grayscale company is a traditional company in the financial system. If it goes down, shuts down, has problems, or anything else, you will not have access to your GBTC. Bitcoin does not have these problems because it is constantly up and running.
- GBTC is trading higher than the current price of BTC.
- GBTC stock only trades while the market is open, while cryptocurrency never closes. If cryptocurrency crashes on the weekend or any other time we’re closed, there is no way out until Monday opens again.
Who Can Invest in the GBTC?
Anybody can buy shares in the secondary market GBTC. You need to be an accredited investor to purchase shares in the private placements.
To be an authorized investor, you need to have an income of at least $200,000 or a combined spousal income of at least $300,000 for the past two years with the expectation to get the same or more during the current year.
The US Securities and Exchange Commission made a new rule for people who want to be accredited investors. The new rule means that people can be accredited investors if they have professional knowledge, experience, or certifications, even if they don’t make a high income.
After the Grayscale Bitcoin Trust first opened in 2010, accredited investors were able to purchase shares of this Trust. In 2015, however, that changed when FINRA approved GBTC to sell shares publicly on the secondary market.
GBTC vs. Bitcoin: Which is Better?
There are two ways to buy and own bitcoins. You can do it directly, or you can invest indirectly by buying shares of a company that owns bitcoins. One way is to use an exchange like Coinbase, and the other is through the Bitcoin Investment Trust.
Is GBTC the Same as Bitcoin?
GBTC is not the same as Bitcoin, but it’s still worth investing in. When you buy GBTC, what you’re really doing is buying shares of a fund that buys and secures Bitcoins on your behalf.
When you buy Bitcoin, you just buy the cryptocurrency Bitcoin (BTC). You do not need to purchase shares in a trust.
GBTC Price vs. Bitcoin Price
GBTC trades at a 15% premium over the Bitcoin spot price.
Although this sounds bad, there is one exception. GBTC trades at a fairly reliable premium. When you buy GBTC at 15% above the price of Bitcoin, then you might be able to sell it for the same price later on. But where the problem starts is in a bull market (when prices go up constantly).
Near the top of the bull market in 2017, GBTC was worth around 100% more than BTC. The price of GBTC dropped to about 20% more than BTC when the market went down. That means if you bought at that time, you would have lost 85%.
The premium can change based on supply and demand, so it’s important to account for this when calculating your returns.
If you buy GBTC when the premium is low, you might make money by selling later. But if the premium is high, you might lose money if you sell to someone else.
Conclusion
It’s easy to criticize Grayscale as a strange financial product that costs too much and encourages people not to take custody of their own Bitcoin. However, together the company is a net positive for the Bitcoin ecosystem.
The Grayscale Bitcoin Trust is an investment company that gives people exposure to bitcoin without having to actually buy it.
The GBTC has been a popular way for investors who are interested in bitcoins but don’t want the risk of buying them themselves. They can invest through this Trust and share even if they know nothing about cryptocurrency.