BTC vs GBTC: Which Should You Buy to Invest in Bitcoin?

Investing in Bitcoin (BTC) or Grayscale Bitcoin Trust (GBTC) are currently the two easiest ways to purchase Bitcoin for the future. The SEC hasn’t approved any Bitcoin ETFs yet so these are the only 2 ways to gain Bitcoin exposure unless you purchase Bitcoin stocks that hold BTC on its balance sheet.

If you’re new to Bitcoin then you’ll probably wonder which one is the better investment. I personally hold both BTC and GBTC so I can help answer this question with first-hand experience.

In this article, I’ll describe both investments then perform a pros and cons analysis to help you determine which investment is the best for you.

Table of Contents

What is Bitcoin (BTC)?

Bitcoin is a cryptocurrency that trades 24/7 365 on the blockchain as a decentralized network powered by miners. You can buy and sell BTC at any time regardless of where you live in the world.

Investing in pure BTC provides the greatest long-term returns but also carries extra risk. You are subject to the risk of hackers or scammers stealing your Bitcoin. You may store BTC in a hardware wallet and forget your private keys (you will no longer be able to access your coins).

However, you won’t have to pay any fees by holding your BTC long-term. You own 100% control of your Bitcoin and can easily sell it in case of emergencies.

Pros

  • Hardest form of money in the 21st century
  • Access your BTC holdings from anywhere in the world
  • Control 100% of your holdings without needing a 3rd party bank or brokerage firm
  • Use your BTC to make purchases using the lightning network or a debit card such as the Coinbase debit card
  • Pay zero management fees to hold your BTC
  • Earn yield on your BTC through a good Bitcoin interest savings account
  • Easily move your Bitcoin between wallets and accounts instantly

Cons

  • Pay taxes on your BTC profits after you sell (Only applies to citizens who live in a crypto capital gains taxable country like the United States)
  • Potential risk of your BTC account being hacked by scammers
  • Potential risk of losing your private keys if you hold BTC offline in cold storage
  • More difficult to pass down your BTC to your kids or family members in case of sudden death
  • Must pay trading fees or a spread to purchase Bitcoin on popular cryptocurrency exchanges such as Coinbase

What is Grayscale Bitcoin Trust (GBTC)?

Grayscale is the largest digital asset management firm in the world and their flagship product, Grayscale Bitcoin Trust, holds the most BTC out of any publicly listed firm.

GBTC is a publicly-traded trust that grants shareholders access to underlying Bitcoin which is held in the trust. GBTC is not a mutual fund, closed-end fund, ETF, or stock.

GBTC trades on the OTC markets and charges a 2% management fee like most managed trusts. It’s becoming an extremely popular holding in IRAs because you can easily purchase GBTC shares through an OTC-supported broker like Fidelity or eTrade.

Pros

  • Easily invest in BTC gains through your IRA, Roth IRA, or SEP IRA account
  • Trade big movements in Bitcoin’s price on a commission free broker and avoid crypto trading fees
  • More protection against hackers and scammers by paying Grayscale to store your BTC instead of storing your BTC privately
  • Gain Bitcoin exposure in your child’s 529 College Savings or UTMA without setting up a private wallet for your kid (most companies like Coinbase and Robinhood have a 18+ age requirement)
  • Tax-free withdrawals on any GBTC held in your Roth IRA

Cons

  • 2% management fee that reduces your overall returns over time
  • You never own full custody of your BTC and there is a possibility that Grayscale suffers a potential Bitcoin hack
  • Can only trade GBTC shares during OTC market hours from 6AM EST to 5pm Monday through Friday
  • Must pay taxes on GBTC withdrawals in your SEP IRA

A Simple Bitcoin Accumulation Strategy for Beginners

Both BTC and GBTC have a role in my long-term financial plan. I hold BTC in cold storage plus own GBTC shares in my SEP-IRA and my kid’s UTMA.

I’m not happy about paying taxes on my GBTC in my SEP IRA in the future but I’m benefiting from tax-deferred deposits up to $58,000 every year.

If you work a regular job then you can buy GBTC in your Roth IRA and retire off Bitcoin gains tax-free after you’re 59 1/2.

Most Bitcoin bulls hold some BTC in cold storage and GBTC shares in their retirement account. This is a wonderful strategy to reduce your overall risk yet benefit from exponential Bitcoin returns in the future.

Conclusion

BTC and GBTC both have great benefits and great risks. There is no right or wrong answer to which is better. Do your own research and figure out which asset you like the best.

I enjoy holding BTC but also appreciate the flexibility and safety of GBTC. Both investment vehicles are a big part of my long-term Bitcoin DCA strategy.


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Tarik Pierce

Tarik Pierce is the founder of InvestorTrip.com and regularly contributes articles to this website. He studied Economics at Dartmouth College and invests in a mix of dividend stocks, high CAGR tech stocks & cryptocurrencies.

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