What is Grayscale Bitcoin Trust?
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The Bitcoin and crypto markets have evolved beyond what most could have imagined a few years ago. For fresh students and retirees alike, Bitcoin has become a household name.
However, one aspect that has prevented people from buying crypto has always been systemic trust. How do people know their money is safe while countless crypto scams are popping up around this market?
Well, that’s where Grayscale Bitcoin Trust comes into play.
What is Grayscale Bitcoin Trust?
GBTC is an over-the-counter investment product that only invests in Bitcoin. It is offered by Grayscale Investments, the world’s largest crypto asset management company. GBTC trades like a security, so it can be bought and sold like a stock. In this way, it acts as an alternative to buying Bitcoin on cryptocurrency exchanges.
What are the holdings of Grayscale Bitcoin Trust?
GBTC trades exclusively in Bitcoin. It uses investors’ capital to buy and store Bitcoin safely in secured custody with Coinbase. However, Grayscale Investments – the asset management company – has several other products dedicated to individual cryptocurrencies. Some of the other cryptocurrencies included are:
- Grayscale Ethereum Trust
- Grayscale Chainlink Trust
- Grayscale Litecoin Trust
- Grayscale Filecoin Trust
- Grayscale Stellar Lumens Trust
What are the benefits of buying grayscale Bitcoin Trust?
GBTC offers a number of benefits to its investors, including liquidity, convenience, security and IRA eligibility.
Liquidity
One of the main advantages for investors is that they can buy and sell GBTC from their regular brokerage accounts, allowing crypto and other assets to be held together.
Convenience
Another advantage is that investors do not need to go through the process of registering with a crypto exchange or setting up a crypto wallet. All the management elements are handled by Grayscale.
Safety
Through its partnership with Coinbase, Grayscale stores the digital assets of its customers in cold storage, which is considered the safest way to keep exposure to digital assets. In exchange for this, Grayscale charges an annual management fee of 2%.
IRA Eligibility
People can invest in GBTC through their individual retirement accounts if allowed by the provider. Pacific Premier Trust, Millennium Trust and The Entrust Group are some examples of providers that allow it.
How do I buy Grayscale Bitcoin Trust shares?
Both institutions and individual investors are free to buy and sell GBTC on the OTCQX Best Market. These transactions can be completed through brokerage accounts that offer OTC trading. Fidelity Investments and Robinhood are brokerages where customers can buy GBTC. Others do not. For example, Vanguard stopped clients from buying OTC securities in April of this year.
Is Grayscale Bitcoin Trust a good investment?
According to Grayscale Investments, its investment products may go through periods where they trade above or below the true value of assets held. Currently, this is the case according to Grayscale. As of September 8, the stock per share is $17.77 and the market price is $12.11, which represents an upside of 46.7%.
While GBTC is a good method for investors to gain immediate exposure to Bitcoin, its appeal as an investment has its limitations. For example, the asset managers of mutual funds and ETFs have an average expense ratio of just 0.4%, according to Morningstar. For GBTC it is 2% annually.
Another more appropriate comparison is cryptocurrency exchanges. One of the top crypto apps, Coinbase, charges a 1% transaction fee instead. This option may be more beneficial to long-term owners as they only incur an additional fee when they sell.
Final Take
GBTC exhibits both positive and negative characteristics. Since the price is not 100% correlated to the price of Bitcoin, it may push some investors towards a DIY approach instead of buying GBTC. For others, getting some exposure to Bitcoin can be a perfect solution as all assets can be tracked from one platform.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, assessments or recommendations expressed in this article are the author’s alone and have not been reviewed, approved or otherwise endorsed by any entity mentioned in this article.
