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Everything you need to know about Grayscale Bitcoin Trust (GBTC)

In recent months, the Grayscale Bitcoin Trust Fund has been dominating the headlines. Here is how it works and what it means to the field of encrypted assets.

Grayscale Bitcoin Trust is a financial tool that allows investors to trade stocks in trusts that hold large amounts of Bitcoin.

The stocks in the fund track the price of Bitcoin, but only roughly.

Grayscale also provides several other exchange-traded products, tracking Ethereum, Bitcoin Cash and Litecoin.

There is a way to invest in Bitcoin directly in the stock market: Grayscale Bitcoin Trust Fund (GBTC). It is one of several such financial instruments that enable investors to trade stocks in trust funds holding large amounts of Bitcoin, and each share is priced close to the price of Bitcoin.

As of October 2020, Grayscale Bitcoin Trust represents $6.5 billion in private investment in Bitcoin assets. The American crypto investment company Greyscale is one of the world’s largest bitcoin buyers. The company launched the trust fund in September 2013. Its transaction code is “GBTC”.

According to data from Bitcointreasuries.org, the Grayscale Bitcoin Trust Fund holds 456,537 bitcoins, accounting for 58% of the 786,059 bitcoins held by listed companies.

1604218495556165Source: BitcoinTreasuries.org

1604218495610775The trust fund made the headlines because of its rapid growth. On June 9, 2020, the trust held 384,953 Bitcoins. This marks an increase of about 70 bitcoins in four and a half months.

Grayscale also made headlines in 2020 due to a large-scale advertising campaign, which encouraged investment in the trust fund.

How does Grayscale Bitcoin Trust work?

Grayscale Bitcoin Trust operates as follows:

Grayscale invited a private pool of wealthy investors to pledge funds to the fund, which used the funds to purchase large amounts of Bitcoin.

Then, the fund is listed on a public stock exchange, which means that anyone can trade stocks in it.

The stocks in the fund track the price of Bitcoin, roughly the same.

The stock trading price of the fund can be higher than the actual price of Bitcoin or lower than the actual price of Bitcoin. Historically, they have almost always traded at a premium.

This is good news for Grayscale and its investors. They make money from this premium, but it is bad news for other ordinary investors.

1604218495621333Image source: GBTC VS BTC yChart

So, why should investors buy shares of Grayscale Bitcoin Trust Fund instead of buying Bitcoin directly?

There are several reasons:

First, investing in a Bitcoin trust allows people to gain exposure to Bitcoin without worrying about how to store it, comply with the law or pay taxes separately.

If you want to buy bitcoin, you have to manage a series of worrying questions: how to store bitcoin? Do you need to pay someone to keep your bitcoins? What happens if you lose your keys or your Bitcoin wallet is hacked?

As a publicly traded trust that reports to the U.S. Securities and Exchange Commission (SEC), Grayscale Bitcoin Trust makes this easy.

Second, publicly traded Bitcoin trusts have various tax benefits. Certain IRAs, Roth IRAs, and other brokerage companies and investor accounts will not provide tax relief for Bitcoin investments. They will provide preferential treatment for investments in publicly traded trusts. Greyscale’s Trust provides these investors with Bitcoin exposure in a tax-friendly way.

Third, cryptocurrency transactions are very isolated. You can’t trade Bitcoin on shares of Tesla and Apple (not using crypto stock derivatives platforms). This cuts off the connection between the encryption economy and the traditional economy.

However, once Bitcoin is listed on the stock exchange-albeit in a very expensive and limited way-traditional investors can invest in the crypto economy.

1604218495612277The Grayscale Bitcoin Trust is one of several publicly traded trusts, although Grayscale is by far the largest.

As of October 2020, the market value of Bitcoin products of rival ETC Group (www.btc-etc.com) is US$60 million, and the market value of Bitcoin products of Wisdom Tree (https://www.wisdomtree.com/) is 3450 Ten thousand U.S. dollars. In October, when the price of Bitcoin surged, Grayscale’s performance was the worst of the three companies despite the fees.

Although its Bitcoin product is by far the largest share, Greyscale also offers several other exchange-traded products.

Among them, Ether Trust is the second largest fund, managing an Ether Fund worth US$928 million. Others include Bitcoin Cash, Etherum Classic, Litecoin, Stella Lumens, XRP, Horizen and ZCash, as well as a digital large-cap stock fund containing BTC, ETH, XRP, BCH and LTC.

The future success of Grayscale Trust is far from a certainty. The stocks of its competitors may be more representative of the price of Bitcoin than Grayscale, or they may charge lower fees.

Grayscale Bitcoin Trust VS Bitcoin ETF

In addition, Grayscale’s model benefits from the absence of Bitcoin ETFs or exchange-traded funds (ETFs).

To invest in the Grayscale Bitcoin Trust Fund, you are buying stocks in the trust fund; with an ETF, you are investing in a fund that directly tracks the price of Bitcoin.

Bitcoin ETFs are currently illegal in the United States.

The SEC rejected multiple Bitcoin ETF applications on the grounds that the price of Bitcoin can be manipulated. While US investors are waiting for the Bitcoin ETF-the SEC may never approve-Bitcoin Trust is the second best option.

statement:

Token Damo strives to be objective and fair in the content and opinions contained in the article (report), but does not guarantee its accuracy, completeness, timeliness, etc.; the information or opinions expressed in this article (report) are not Form any investment advice, Token Damo does not assume any responsibility for any actions taken due to the use of this article. Please be cautious to participate in the cryptocurrency market.

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