What is the Grayscale Bitcoin Trust?
The Grayscale Bitcoin Trust is an investment instrument that allows owners to buy and sell securities of trusts that possess vast amounts of Bitcoin.
The fund’s shares follow the price of Bitcoin, but just very closely. Grayscale also tracks Ethereum, Bitcoin Cash, and Litecoin, among other cryptocurrencies, by exchange-traded items.
The Grayscale Bitcoin Trust is a way to invest in Bitcoin on the stock market (GBTC). It’s one of a number of investment vehicles that enable investors to exchange stock in trusts that hold vast reserves of Bitcoin, with each share priced close to the Bitcoin price.
The Grayscale Bitcoin Trust holds $37.2 billion in privately held Bitcoin funds as of April 2021. Grayscale, a crypto investment company based in the United States that is one of the world’s largest buyers of Bitcoin, founded the trust in September 2013. Its ticker symbol is “GBTC.”
Barry Silbert, who also operates the Digital Currency Group, a crypto venture capital company with investments in Coinbase, Coindesk, and Ripple, founded Grayscale.
How does the Grayscale Bitcoin Trust work?
On Sept. 25, 2013, The Grayscale Investment Trust was launched as The Bitcoin Investment Trust as a private placement of approved customers, and subsequently obtained FINRA clearance for qualifying securities to sell publicly.
GBTC is traded on the OTCQX, an over-the-counter platform for firms that are not expected to comply with the Securities and Exchange Commission, under the Alternative Reporting Standard (SEC).
Since its worth is extracted purely from Bitcoin, its growth is similar to that of that cryptocurrency.
For accredited individuals who choose to apply to the Trust as a private placement, the trust needs a minimum deposit of $50,000 and charges an ongoing fee of 2.0 percent, which accrues monthly. Investors, on the other side, will buy as little as one share of the GBTC public quotation.
Grayscale claims that the fund’s management is worth greater than the annual charge, and protection is one of the main selling points.
The Grayscale Bitcoin Trust’s properties “are safeguarded by a sophisticated storage infrastructure that employs industry-leading security protocols,” according to the firm. Storing cryptocurrency securely is notoriously difficult.
GBTC is an over-the-counter investment vehicle that buyers can purchase and sell in the same manner they can buy and sell almost every other U.S. security.
GBTC, for example, should be sold by a trading company and held in tax-advantaged funds such as IRAs and 401(k)s.
Disadvantages of GBTC
Investors have paid a heavy price for the Trust since it is still the first investment of its type dedicated solely to bitcoin.
While the premium is substantial, it is smaller than in the past, when GBTC closed at more than two times the valuation of the underlying bitcoins. Grayscale claims that rates are set by the consumer rather than by Grayscale, so price changes may be due to supply and demand.