What is Grayscale Bitcoin Trust (GBTC)?

The Grayscale Bitcoin Trust is an investment vehicle that is designed to enable investors to trade Bitcoin shares without actually owning the underlying cryptocurrency.

Grayscale Bitcoin Trust (GBTC) background

The Grayscale Bitcoin Trust was first established in 2013 by Barry Silbert, who also is the founder and CEO of Digital Currency Group (DCG), a bitcoin and blockchain investment company that has invested in lots of popular companies such as Ripple, Coinbase, Coindesk, Circle, Kraken, and Chainalysis. Grayscale Bitcoin Trust is sponsored by Grayscale Investments, LLC (Grayscale), which is one of the world's largest digital currency asset manager. GBTC is a Bitcoin investment trust exclusively invested in the mainstream cryptocurrency. Through GBTC, you can buy, hold, and sell Bitcoin shares in a similar way as stocks without worrying about the complex operations that may come with holding the actual cryptocurrency.

Why GBTC

There are a few advantages to owning GBTC.

GBTC enables one to buy and hold Bitcoin in a simplified way, with guaranteed safety. To actually own Bitcoin, you need to know where to buy and sell the digital asset. To store Bitcoin safely, you need to manage crypto wallets, a crypto account, and a private key. You will lose the Bitcoin if you forget the private key credentials or if the key is disclosed to others or is hacked. With GBTC, you don't need to worry about the problems in buying, storing, and safekeeping BTC on your own. You can gain exposure to BTC in the form of security, similar to buying a stock.

Regulation around GBTC may be more comprehensive than regarding Bitcoin as well, as GBTC is the first publicly-quoted Bitcoin investment tool on OTCQX (OTCQX: GBTC). GBTC and GETH became SEC reporting companies on January 21, 2020, and on October 5, 2020, respectively.

GTBC shares, which operate like stocks and bonds, provide tax-paying conveniences for investors. So you don't need to worry about how to fill the tax return, in comparison to when you hold Bitcoin directly.

With GBTC, investors gain tax advantages, as shares can be held in certain IRA, 401ks, Roth IRA, brokerage, and investor accounts.

GBTC stock, fee, and returns

As of October 30, 2020, GBTC has assets under management (AUM) of $$6.4 billion and has 502,488,200 shares with one GBTC representing 0.00095336 bitcoin. The price per share is roughly approximate to the value of Bitcoin represented in the share, but those two can be substantially different. As of October 30, 2020, GBTC has around 479,052 bitcoins.

GBTC's annual management fee is 2%. At close as of 10/30/2020, the GBTC share has a return of 9,021.43% since its inception on Sept 25, 2013.

There are two ways to buy GBTC shares. You can purchase GBTC shares directly if you are an accredited investor and the minimum investment requirement is $50,000. But this way of buying is restricted and subject to significant limitations on resale and transferability. For general investors, you can buy GBTC stock through OTC Markets like the OTCQX. The GBTC stock price fluctuates like a traditional stock. Price indexes you can visit are Yahoo, OTCMarkets, and TradeBlock.

Grayscale crypto trust diversity

To take advantage of crypto trusts, Grayscale has extended its investment services to other major cryptos besides Bitcoin. It now provides crypto trusts including Grayscale Bitcoin Cash Trust (BCH), Grayscale Ethereum Trust (ETH), Grayscale Ethereum Classic Trust (ETC), Grayscale Litecoin Trust (LTC), Zcash Trust (ZEC), and more.

More bitcoin derivatives and more institutional investors

We have been seeing more investment derivatives and more direct institutional investors, which could make bitcoin and crypto a more mature market.

3iQ, founded in 2013, was the first Canadian regulated investment fund manager to manage a public Bitcoin investment fund (TSX:QBTC.U) and multi-crypto asset fund. Arrano Capital, the blockchain arm of Venture Smart Asia, was the first crypto fund approved by Hong Kong's Securities and Futures Commission (SFC).

Bakkt, owned by Intercontinental Exchange, the parent organization of the New York Stock Exchange, is the most famous in providing Bitcoin Futures. 

As for Bitcoin ETFs, there are no regulated ETF products yet in any major countries.

Institutional Bitcoin investors include MicroStrategy, which currently holds a total of 38,250 Bitcoins with an aggregate purchase price of $425 million and an average price of $11.11k. Square now holds 4,709 bitcoins with a purchase price of $50 million.