What is Grayscale Bitcoin Trust and How does it work

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Grayscale Bitcoin Trust

As the digital currency market has emerged and evolved, Grayscale has grown alongside it, becoming the leading partner to investors as they navigate and deploy capital into this new asset class. One of the first securities solely invested in and deriving value from the price of BTC.

What is Grayscale Bitcoin Trust

Grayscale Bitcoin Trust is solely and passively invested in BTC, enabling investors to gain exposure to BTC in the form of security while avoiding the challenges of buying, storing, and safekeeping BTC, directly.

Grayscale Bitcoin Trust provides a secure structure to gain exposure to BTC. Eligible shares are quoted on the OTCQX, the top marketplace operated by OTC Markets, and registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. Investors can buy and sell shares through most traditional brokerage accounts at prices dictated by the market.

How Does Grayscale Bitcoin Trust

The Grayscale Bitcoin Trust works like this:

  • 🤑 Grayscale invites a private pool of rich investors to pledge money to the fund, which it uses to buy up huge amounts of Bitcoin.
  • 🏛️ Then, Grayscale lists that fund on public stock exchanges, meaning that anyone can trade shares in it.
  • 📈 Shares in the fund track the price of Bitcoin, but only roughly.

Shares in the fund can trade at either a premium or a discount to the actual price of Bitcoin. Historically, they’ve almost always traded at a premium. This is good news to Grayscale and its investors, who earn money from that premium, but bad news for investors.

So, why would investors buy shares in GBTC instead of just buying Bitcoin outright? There are a couple of reasons:

First, investing in a Bitcoin Trust allows people to gain exposure to Bitcoin without having to worry about how to store it, comply with the law, or file separate taxes.

If you’re buying Bitcoin, you have to manage a laundry list of concerns: How do you store it? Do you need to pay someone to hold custody of your Bitcoin? What happens if you lose the key or your Bitcoin wallet is hacked? As a publicly-traded trust, which reports to the US Securities and Exchange Commission (SEC), the Grayscale Bitcoin Trust makes this easy to forget about.

Second, publicly-traded Bitcoin trusts come with various tax advantages. Certain IRA, Roth IRA, and other brokerages and investor accounts that won’t give tax breaks on investments of Bitcoin, will give them for investments in publicly traded trusts. Grayscale’s Trust provides those investors with exposure to Bitcoin in a tax-friendly way.

Third, crypto trading is very insular. You can’t trade Bitcoin against stocks in Tesla and Apple (without using crypto stock derivatives platforms). That cuts off the crypto economy from the traditional one. However, as soon as you list Bitcoin on the stock exchange—albeit in a very expensive, limited way—traditional investors can invest in the crypto economy.

The Grayscale Bitcoin Trust is one of several publicly traded trusts, although Grayscale is by far the largest. Rival ETC Group’s Bitcoin product has a market cap of $1.2 billion, as of April 2021, and Wisdom Tree’s Bitcoin product has a market cap of $329.6 million.

Grayscale also offers several other exchange-traded products—although its Bitcoin product is by far the largest. Its Ethereum Trust is the next largest, with $6.4 billion worth of Ethereum under management. Others include Bitcoin Cash, Ethereum Classic, Litecoin, Stellar Lumens, Horizen, and ZCash, as well as a digital large-cap fund that contains BTC, ETH, LINK, BCH, and LTC.

The future success of Grayscale’s trust is far from secure. The shares of its competitors could represent Bitcoin’s price more than Grayscale’s, or they could charge lower fees.

Who Owns Grayscale Bitcoin Trust

Grayscale was founded by Barry Silbert, who also runs the Digital Currency Group, a crypto venture capital firm that’s invested in Coinbase, Coindesk, and Ripple.

How to Buy Grayscale Bitcoin Trust

An investor can buy a portion of the asset by purchasing shares in the fund. Since GBTC is a cryptocurrency trust, you can buy its shares through your brokerage account

Grayscale Bitcoin Trust ETF

Grayscale Investments calls it a traditional investment vehicle with shares titled in the investor’s name. Although the Trust is not an ETF itself, Grayscale says it’s modeled on popular commodity investment products like the SPDR Gold Trust, a physically backed ETF.

Is Grayscale Bitcoin Trust a Good Investment

According to Bybit experts, GBTC isn’t a good investment option because the value of GBTC shares doesn’t accurately match the value of Bitcoin. Its shares have been trading at a discount since early March 2021, and they’re now trading at a record low 45.08% discount to Bitcoin’s net asset value