The Grayscale Bitcoin Trust is a digital currency investment product that individual investors can buy and sell on their own brokerage accounts. On January 21, 2020, it became an SEC reporting company, registering its shares with the Commission and designating the Trust as the first digital currency investment vehicle to achieve SEC reporting company status. This will allow accredited investors who purchased shares in the Trust’s private placement to have an earlier liquidity opportunity, as the legal holding period for private placement shares would be reduced from 12 months to 6 months, under the rules of the SEC.
Learn more about the Grayscale Bitcoin Trust
The Grayscale Investment Trust debuted as Bitcoin Investment Trust on September 25, 2013 as a private placement with accredited investors and later received FINRA approval for shares eligible for public trading. . This means that investors have access to buy and sell public shares of the Trust under the symbol GBTC. Grayscale Investments calls it a traditional investment vehicle with shares titled on behalf of the investor. While the Trust is not an ETF itself, Grayscale says it is modeled after popular commodity investment products like the SPDR Gold Trust, a physically backed ETF.
GBTC is publicly traded on the OTCQX, an over-the-counter market, under the Alternative Reporting Standard for companies that are not required to register with the Securities and Exchange Commission (SEC). Its success mirrors that of Bitcoin as its value is derived solely from this cryptocurrency.
As of September 11, 2019, GBTC had approximately $ 2.16 billion in assets under management (AUM) and 2.4 million shares outstanding. The trust requires a minimum investment of $ 50,000 and charges an annual fee of 2.0%, which accrues daily, for qualified investors who wish to subscribe to the trust on a private placement basis. On the other hand, investors are allowed to buy as little as one GBTC public listing share.
Grayscale suggests that its management of the fund is worth more than the annual fee, and one of its main selling points is its security. Storing cryptocurrency securely is notoriously difficult, and the company assures investors that Grayscale Bitcoin Trust’s assets “are protected by a robust security system that uses state-of-the-art security standards.”
As an over-the-counter investment vehicle, GBTC is available to investors to buy and sell in the same way as virtually any US security. As an example, the GBTC can be traded through a brokerage firm, and it is also available in tax-advantaged accounts like IRAs or 401 (k) s.
Disadvantages of GBTC
Andrew Left of Citron Research has publicly criticized the Grayscale Investment Trust, and Citron tweeted that GBTC is the “most dangerous way to own Bitcoin”. The possible drawbacks of investing in the Trust include the payment of high premiums as well as annual fees, as well as the risk factors associated with the overall volatility of the cryptocurrency market, as well as investment vehicles that do not. are not required to register with the SEC.
Since the Trust is currently the only fund of its kind specifically aimed at bitcoin, investors have paid a hefty premium. In September 2018, GBTC shares were trading at a high of $ 7.95, which is about 20% more than the value of bitcoin in the trust that each share represented at that time. While this premium is significant, it is lower than it has been in the past – GBTC closed at prices more than twice the value of its underlying bitcoins. Grayscale proposes that prices are dictated by the market and not by the grayscale itself, so price fluctuations can be the result of supply and demand.
As of October 2018, each GBTC share represented less than 0.001 bitcoin. This means that it would take over 1,000 GBTC shares to own a bitcoin. GBTC saw a steady increase in 2017 and peaked at the end of the year. However, its performance in 2018 has fluctuated, and overall GBTC has been on a downward trend, dropping almost 65% since the start of the year in October 2018. Larger declines could mean that stocks could lose most or all of their value. In 2019, while the price of Bitcoin generally followed an upward trend, the GBTC followed.