What is GBTC?
Grayscale Investments is a digital currency investment firm that began managing assets for institutional clients and accredited investors as a private placement (private sale of shares) in 2013. In 2019, Grayscale received approval to sell eligible shares to the public under the symbol/ticker GBTC. These shares allow investors to gain direct Bitcoin exposure without having to buy the digital asset from an exchange and safely store it.
What is the difference between GBTC and Bitcoin?
Bitcoin is a decentralized banking network that allows individuals to custody and control their own funds without a third party. Bitcoin is more than just the coins that are exchanged between individuals. It is also a network which can be built on top of. Lightning Network is an example of a product being built on top of Bitcoin. Lightning is a second layer that instantly executes smaller bitcoin transactions. Bitcoin ownership is made possible for two reasons: the miners who verify each new transaction and the nodes that verify the transaction history since 2009. You can think of owning Bitcoin in the same way that holders of gold own the physical asset, rather than owning a gold certificate. In the case of GBTC, one would need to use a brokerage account in order to purchase Bitcoin certificates. Additionally, GBTC shares are not transferable between peers. On the other hand, Bitcoin is able to send funds whenever and wherever around the globe.
How is GBTC structured and what type of Bitcoin exposure does it have?
GBTC is sold to the public as an ownership in the Grayscale Bitcoin Trust rather than as a direct and equal value claim to Bitcoin. An investment trust is a company that owns a fixed amount of an asset like gold. The trust is not an ETF, but it is structured in the same way as a gold trust, where each publicly traded share is backed by a certain amount of Bitcoin. Each share of GBTC is currently priced in USD and represents 0.00094789 BTC (the exact amount may change in the future).
Advantages of GBTC
- Convenience: For those who already have a traditional IRA, Roth IRA, or an individual account with a brokerage firm, it is convenient to purchase GBTC if it is offered by the fund. No knowledge for storing Bitcoin is required.
- Tax advantages: Investors who have a traditional or Roth IRA will be able to take advantage of the tax incentives that come with contributing to retirement accounts. It is also worth looking into whether or not your company’s 401k plan offers direct purchases of GBTC.
- Customer support: With a support team, they will be able to answer all questions involved with GBTC and provide technical support during business hours.
- 1:1 backing: Grayscale is actually backed by Bitcoin (not by the price), whereas other similar products may not be.
- Insurance: All Grayscale Bitcoin is insured by Coinbase Custody. Please be aware that the timeline for a reimbursement of lost funds is up to the discretion of Coinbase.
Disadvantages of GBTC
- By investing in GBTC, you give up the right to withdraw your bitcoin funds onto a personal hardware or software wallet. You do not control how the bitcoin is used. Grayscale’s terms are subject to change.
- You are unable to transfer funds at your own convenience.
- The centralized server containing all of your account details may go offline at any time.
- Your privacy with the brokerage firm or Grayscale is not guaranteed to be secure. The user must consent to having their personal information shared with third parties. Certain third parties may have different security methods that may or may not be as secure as Grayscale's own systems.
- Your brokerage account may be frozen or closed without your consent.
- Although Grayscale uses extensive measures to secure their Bitcoin holdings, there’s always a risk that they lose the Bitcoin under their custody.
- GBTC is traded at a premium to Bitcoin’s actual price. This is an advantage for the fund but not necessarily for the investor. If a BTC ETF was ever available in the US, this premium would be greatly reduced or diminished entirely. After the release of the Canadian ETFs (BTCC and EBIT), QBTC (a Canadian closed-end fund that tracks the price of BTC) has seen a discount in its trading price and may continue to stay discounted. GBTC could face the same price correction if a US based ETF were available. GBTC could trade as high as 132% to Bitcoin’s price and could also trade as low as -0.3% to Bitcoin’s price. The price difference will vary depending on market conditions, but be sure to check what the premium is before purchasing GBTC shares.
- There is a 2% annual management fee.
How do I buy GBTC?
GBTC is traded publicly on OTCQX, an over the counter market. You may purchase GBTC through a brokerage account, traditional IRA, or Roth IRA account. It may also be available with a company 401k account. Not all 401k accounts and individual brokerage accounts will offer GBTC. If a company retirement account does not have access to GBTC, check to see if they will allow you to gain exposure to publicly traded companies that have Bitcoin on their balance sheets. If individual brokerage accounts do not have tax incentives for investing in them, make sure to check if they offer GBTC as an option before singing up with one.
Does GBTC make sense for me to own?
Some of the main reasons for investing in GBTC include:
- You are already contributing to your own self-directed IRA or a 401k through your employer.
- You plan to continue to contribute to these retirement accounts.
- You wish to gain Bitcoin exposure without taking on the responsibility of storing the bitcoin yourself.
- You are concerned with your technical abilities to self custody and keep the bitcoin you purchase on your own.
- You want to diversify your Bitcoin exposure. GBTC may be a portion of where you want to keep your Bitcoin holdings.
- You prefer to have a support team to reach in the event that something goes wrong.
- You do not plan to transact with your bitcoin but rather use it as a store of value.
It is always important to do your own research and reach out to those you know who have more experience or knowledge on the subject of Bitcoin.