Understanding the Bitcoin Investment Trust

Jim Woods

investment

The Bitcoin Investment Trust (GBTC) is the only publicly available choice for investors to trade bitcoin in the stock market.

GBTC is a publicly traded exchange-traded fund (ETF) that holds bitcoin as its sole asset. Following its inception in September 2013, GBTC remained relatively quiet until May 2015, when it greatly improved liquidity for its investors by having shares of the trust trade on the U.S. OTC Market.

GBTC is run by Grayscale, a digital currency group company. In the words of Grayscale’s Director of Business Development Michael Sonnenshein, GBTC employs “no leverage, no trading, no cash, no other assets at all other than bitcoin.” As of this writing, each share of GBTC represents ownership of approximately 0.092 bitcoin.

One disadvantage to the fund is that it charges an annual expense fee of 2%. The fund’s popularity and a lack of competition also have driven its price far above the value of the bitcoin it holds. This translates into a hefty premium if around 50% for investors to hold GBTC shares, as opposed to owning bitcoin directly. However, GBTC has several notable advantages over bitcoin:

  1. A familiar investment vehicle with a familiar structure. Directly trading the still relatively new concept of cryptocurrency can be intimidating to investors. GBTC provides investors with the more familiar structure of an ETF.
  2. Ease of trading. Since it is a publicly quoted fund, investors can purchase shares of GBTC through their existing brokerage accounts to eliminate the hassle of creating and managing additional cryptocurrency trading accounts.
  3. The premium could work in investors’ favor. As mentioned above, GBTC trades at a premium to the value of bitcoin it holds because of speculation on bitcoin prices. This could benefit investors if the value of bitcoin starts to gain momentum, causing that premium to increase. In short, a slight increase in the value of bitcoin could translate to a bigger movement in the price of GBTC.
  4. Eligibility for tax advantages. Shares of GBTC can be held in certain IRA, Roth IRA and other investor accounts to give investors the possibility of reducing their taxes.
  5. Added Security. With its explosive growth in value, the theft of bitcoins has not been uncommon around the world as of late. GBTC stores its bitcoins in vaults that are protected with sophisticated encryption.
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Over the last 12 months, GBTC has returned 730.58%. However, as regulations against bitcoin sales have started to mount, the value of bitcoin and GBTC have fallen considerably over the last month to plunge by roughly 61% as of Feb. 5.

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Other than GBTC, Grayscale runs two similar funds that derive their value from Ethereum and Zcash, which are other types of cryptocurrencies. But for investors who are seeking a convenient way to trade bitcoin, I encourage you to consider Bitcoin Investment Trust (GBTC).

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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