Is Grayscale Bitcoin Trust (GBTC) A Good Investment?
Grayscale is the world’s largest cryptocurrency asset manager with over $16 billion in assets under management. The popular Grayscale Bitcoin Trust allows investors to own Bitcoin without worrying about storing it through a trust that reports to the SEC.
What is the Grayscale Bitcoin Trust?
Grayscale’s Bitcoin Trust is a closed-ended fund that holds around $12.4 billion AUM (~635,240 BTC) and has returned over 12,500% since inception. GBTC’s Bitcoin deposits remained locked forever and cannot be resold back into the crypto market.
How Much Bitcoin is in each GBTC Share?
Each share of GBTC holds 0.00091713 BTC, which is worth about $24 in current market value.
When you purchase GBTC through their private closed trust, you must invest at least $50,000 and Grayscale charges you a management fee. Luckily, there is an easy way to avoid management fees by purchasing GBTC stock over the counter.
You can purchase GBTC through any stock trading broker that accepts OTC orders. I use Fidelity to buy GBTC in my SEP IRA but I also posted a list of good OTC brokers at the end of this article.
Grayscale Bitcoin Spot ETF Approval
Grayscale desperately wants to convert GBTC into an ETF to gain additional exposure to retail investors and charge an expense ratio for managing the fund.
Unfortunately, the SEC rejected Grayscale’s Bitcoin Spot ETF application, but Grayscale reapplied and won its lawsuit against the SEC in August 2023.
What is the Purpose of a Bitcoin ETF?
A Bitcoin ETF makes it easier for retail investors and institutions to invest in Bitcoin without holding its own private keys.
ETFs trade on major US stock exchanges during normal stock market hours and offer several benefits for new Bitcoin investors:
- Investors can hold Bitcoin without owning it on a crypto exchange or wallet
- Options traders can trade call and put options on the ETF
- Long term investors don’t need to remember their private keys because institutions will use custody services such as coinbase to secure the ETF’s holdings
I understand the need for a product like GBTC to give institutional and whales a simple and easy way to invest in Bitcoin.
It’s also useful for individual investors who want Bitcoin exposure in their 401k or IRA. You can even buy GBTC in your child’s UTMA or 529 plan to save for his or her future.
GBTC Risk Factors
The only downside to buying GBTC is the Grayscale Bitcoin Trust Discount issue. GBTC often trades below its NAV due to its high 2% annual fees and lack of accessibility on the NASDAQ & NYSE.
Once new Bitcoin spot ETFs appeared in Canada and Europe, many crypto investors sold their GBTC shares and bought up Bitcoin ETFs instead.
As of August 2023, the GBTC discount is 11% and you can purchase GBTC shares for $20 even though each share holds over $24 in Bitcoin.
If the SEC approves the Bitcoin Spot ETF then the GBTC discount will be erased fairly quickly.
