Investing

Bitcoin

GBTC is the world's largest Bitcoin fund and the first-ever publicly traded trust that has a digital currency as its underlying value.

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Grayscale® Bitcoin Trust (GBTC), an investment trust that’s traded on the stock market, is a great option for individuals, companies and institutions unfamiliar with the crypto world who want to 

But is it a good investment option for everyone else? Are you missing out if you haven’t invested in it yet? Are there drawbacks that might deter some people from buying Grayscale? 

In this article, we’ll answer these questions and more.

Grayscale Bitcoin Trust (GBTC) is the world's largest Bitcoin fund. It’s also the first-ever publicly traded trust that has a digital currency as its underlying value.

 If you don’t know what that is, here’s a quick rundown. 

Trusts and funds on public stock exchanges have an underlying asset that dictates their value. These assets are mostly stocks in publicly traded companies. The price of the trust or fund fluctuates based on the underlying 

 (NAV), which is affected by the asset’s demand. An investor can buy a portion of the asset by purchasing shares in the fund. 

Since GBTC is a cryptocurrency trust, you can 

 through your brokerage account. In doing so, you indirectly buy Bitcoin — avoiding the hassle of purchasing BTC through a 

. This means that you’re relying on Grayscale to buy and hold Bitcoin for you as a third party.

So the actual BTC is stored in the Grayscale institutional trust, and its retail index is traded on either the open or over-the-counter market. GBTC is similar to a crypto exchange-traded fund (ETF), as it pools investors’ funds to invest in Bitcoin and charges investors a management fee for investing in the fund.

How Does the GBTC Investment Vehicle Compare to a Bitcoin ETF? 

, is a competitor of GBTC. That’s because ETFs track the market data or value of the underlying asset much more closely than a trust. Hence, the market price per Bitcoin ETF share is relatively close to the actual value of BTC. 

But that’s not the case with shares of GTBC, because the trust charges a 

 and sometimes also a premium. That significantly increases the price of a GBTC share as compared to the market price of BTC while spot buying, or while buying shares of a Bitcoin ETF. 

However, there are currently only Bitcoin futures ETFs in the market. GBTC is proposing to be approved as a 

, which may be a better product than Bitcoin futures ETFs — as spot Bitcoin ETFs track the market even more closely than Bitcoin futures ETFs. 

Grayscale Bitcoin Trust gathers money, usually U.S. dollars (USD), from institutional investors and uses that to buy BTC directly. These BTC are stored in the Grayscale fund, which essentially makes the Grayscale institution — rather than its investors — the actual 

. You can then buy shares of GBTC and indirectly own BTC. 

Ever since Grayscale became a publicly traded fund in 2015, various investors have poured a lot of cash into GBTC by buying Grayscale stocks during bull 

. Grayscale has used that capital to buy more and more BTC. Now, it’s accumulated over 643,572 bitcoins, which is 

 as of the time of this writing (November 22, 2022). 

To put that number into perspective, Tesla holds approximately 10,725 bitcoins and Ukraine holds about 46,000 BTC.

What Are Premiums and Discounts on GBTC Shares? 

When you buy or sell GBTC shares, the trust doesn’t immediately buy or sell BTC with your investment. That’s where the concepts of premium and discount come into play, which are essential to learn about if you want to understand how GBTC works. 

Suppose the Grayscale trust has about 500,000 BTC, which are all bought by shareholders. Then five investors come in, and each buys 1,000 BTC worth of GBTC shares. 

Those purchases will raise the overall value of the trust by increasing the number of BTC held by GBTC investors as compared to the number of bitcoins owned by Grayscale as an institution. That’s because GBTC doesn’t immediately use the new investment to buy 5,000 more BTC.

This means that there’s a greater demand for GBTC shares than the supply of BTC. In such a case, the trust will add a premium to BTC’s value. Anyone who wants to buy GBTC shares will then have to pay that premium on top of the share value. 

Similarly, if a bunch of investors sell their GBTC shares, the new investors will get a discount. This fluctuation means that you have to buy BTC at a different price than what you’ll get by buying directly from exchanges. That’s why GBTC share prices aren’t the same as the actual value of BTC. 

Finally, you can only buy or sell GBTC shares during the opening hours of the stock market, unlike 

 buying and selling, which you can do at any time. 

Pros and Cons of Grayscale Bitcoin Trust (GBTC)

To help you decide whether or not to invest in the Grayscale Bitcoin Trust, let’s look at its pros and cons.

Some advantages of buying GBTC stocks over owning Bitcoin directly include: 

Crypto exchanges and wallets are vulnerable to 

. GTBC charges a management fee for keeping their BTC secure in cold storage, which is safe from hacks. 

2. Regular Audits of the Bitcoin Investment Trust 

 with the securities and exchange commission (SEC) to prove that it has the BTC that investors have paid for. That’s an advantage over crypto exchanges, which have the potential to scam people. An example of one such scam is the 

Investors can get tax breaks when they buy GBTC shares through 

, such as a 401(k) or an IRA. It’s also easier for investors to file taxes for publicly traded stocks of a trust that’s approved by the SEC. 

Some drawbacks of owning GBTC stock are as follows: 

GBTC charges a 2% annual fee. On top of that, you have to pay a premium to buy shares when demand is high. It’s not a good fit for smaller investors, because you need a minimum investment of $50,000 to buy into Grayscale Bitcoin Trust. 

You can never redeem your shares for actual BTC because the Grayscale trust owns the private keys to the BTC in your shares. 

The value of a GBTC share hasn’t been growing at the same rate as its underlying asset. Even if you don’t have to pay a premium, you still won’t earn as much profit by buying shares as you will by owning Bitcoin directly. From 2020 to 2021, GBTC’s share price 

 in value while BTC surged by nearly 340%. 

 (PoR) with its customers due to security concerns, despite the global panic over the 

. This refusal has sparked public furor over the company's future.

Is Grayscale Bitcoin Trust a Good Investment?

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 

, and they’re now trading at a record low 45.08% discount to Bitcoin’s net asset value. 

So if you buy GBTC shares today, you’ll get fewer BTC than what you’ll get through spot buying for the same amount of USD. 

Investing in GBTC doesn’t give you voting rights on protocols, because you don’t own the 

to the BTC in your shares. Also, transactions occurring on the trust are censored by government agencies — which defeats the original purpose of a decentralized digital currency. 

Perhaps in the future, if the shares start trading at a premium again, then Grayscale will be a good option for accredited investors who can purchase GBTC shares at the NAV price. 

Volatility is unavoidable whether you’re buying BTC directly or on the open market through GBTC. Whenever lawmakers release new rules about regulating crypto, or deny a 

Also, since you don’t own the BTC in your GBTC shares, you can’t use it. If you want to actually use Bitcoin and save on management fees, then you’re better off 

GBTC has always been a viable option for only a small group of wealthy investors. Moreover, it not only 

, but has also faced serious criticism over its refusal to share its proof of reserves. Given these risks in investing with GBTC, it may be cheaper and safer for retail investors to own Bitcoin directly, despite the current volatility of the crypto market.

Grayscale Bitcoin Trust (GBTC): All You Need to Know

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