What does GBTC do?
Grayscale Bitcoin Trust or GBTC is an investment vehicle that allows investors to gain access to the volatility of BTC without owning the asset. Investors are buying a security and will not need to buy Bitcoin, secure it or sell it when they want to realize gains. When an investor buys the stock, they’re getting a representation of a number of Bitcoin.
Currently, a share of GBTC represents 0.00094913 BTC. You can find the live conversion via the Grayscale website.
When buying shares of GBTC, you’re paying a premium, which is calculated by the value difference of the holdings vs. the holdings’ market price. This calculation can be referred to as the Native Asset Value or NAV.
When the market price increases higher than the NAV, a premium occurs. The premium plus the NAV price is equal to the market price. This premium is not a fixed price as supply and demand will change, and thus the premium will effectively change.
Investors are all charged a yearly maintenance fee in addition to a possible premium fee.
How does a premium affect your trade?
The premium will effectively leverage your trade. If you buy shares at a high premium and Bitcoin drops, you will lose more money than if you just held Bitcoin. The opposite also is true. If you buy shares of GBTC at a lower premium and Bitcoin spikes upward, you will make more money than merely holding the asset.
Different kinds of investments
Grayscale has two investment types: buying shares directly on the open market, and the other is supplying BTC into the fund, and receiving shares. To invest Bitcoin in the fund, you must be accredited.
When you supply Bitcoin or USD to the fund, you’re given shares based on the bitcoin representation we discussed above.
“Currently, a share of GBTC represents 0.00094913 BTC. You can find the live conversion via the Grayscale website.”
These investors are given shares outside of the premium because they are creating the supply of the fund. Investors must wait six months before they’re allowed to sell the shares on an open market, and they cannot redeem their Bitcoin again. Once you supply Bitcoin, you can never withdraw it.
When an investor buys at the NAV price, they can effectively lock in the premium value by selling at a higher market price after their vesting period.
Secondary investors who buy the shares directly on the open market will pay the premium. So why do people buy the shares on the free market if they aren’t getting the best rate/
Advantages of using GBTC as a regular investor
Below we will explore some of the advantages of buying GBTC instead of loading up an exchange and buying Bitcoin yourself.
1. No personal security
If you buy GBTC via your investment account, you won’t need to remember private keys or even create an account like you would on an exchange. This means you don’t need cold storage, recovery phrases, or anything. The barrier to entry is minimal as you’re one click away from entering the market.
The downside to this is that you don’t own the asset itself. As fiat goes through inflation, so will your stock’s shares because they are pegged to USD and aren’t the tremendous asset we all love. Since Grayscale is a business, they’re going to charge a yearly maintenance fee, so you’re paying for them to secure the fund.
2. ROTH, IRA, and other brokerage accounts
GBTC is a convenient way to invest in Bitcoin through a brokerage account that may offer tax advantages. You’re buying a share of a company like you usually would, so it’s as easy as anything else.
3. Even better bull runs
As we mentioned before, if Bitcoin has an excellent run, then you would effectively be making more money if you time it correctly and buy GBTC when the premium is lower. As Bitcoin goes up, you can bank on the added premium that you can sell on.
The disadvantage to this, it’s hard to time the market perfectly, and if Bitcoin drops, you will lose more money than if you just bought the asset directly.
Advantages of using GBTC as an institutional investor
Below are the reasons that companies might buy GBTC instead of Bitcoin.
Since accredited investors can supply fiat or Bitcoin to the fund, they can get the shares at market value and sell in six months with the premium intact. This spices up the deal for institutions and will give them more of a reason to invest.
2. The safest way to invest
Some institutions will not allow cryptocurrency to be bough directly since it’s still a new asset. However, with GBTC, these companies can feel confident as they’re getting shares of the fund and can gain exposure to Bitcoin. They won’t need custodial wallets, and they can add these shares to their fund like they usually do.
Key Take Away
- When buying shares of GBTC, you’re paying a premium, which is calculated by the value difference of the holdings versus the holdings’ market price. This calculation can be referred to as the Native Asset Value or NAV.
- Grayscale has two investment types: buying shares directly on the open market, and the other is supplying BTC into the fund, and receiving shares. To invest Bitcoin in the fund, you must be accredited.
- Investors can purchase shares through their traditional investment brokerage accounts and may get tax advantages.
- If Bitcoin goes up, you’ll make more money if you buy the premium at a low. If Bitcoin drops, you will have a more significant loss than merely holding the asset directly.
To learn more or join, you can visit the GrayScale official website. You can also look for GBTC in your traditional brokerage account.