Trading under the ticker symbol GBTC, the Grayscale Bitcoin Investment Trust is currently the only Bitcoin Investment Trust that is publicly trading. Pegging its share price to the TradeBlock XBX 24-hour bitcoin index, the BIT is generally seen as favorable by the bitcoin community, since shares usually trade as an asset to bitcoin’s net market value. The Grayscale BIT is seen as the only viable alternative to active bitcoin purchasing as an investment option today.
The Grayscale Bitcoin Investment Trust is owned by DCG, which also acquired the cryptocurrency news site CoinDesk in 2016.
With the exception of momentary price spikes, the BIT has shown consistent growth, with the trust currently sitting near its record-high. Daily trading volume has also shown incremental growth, although the volume has shown more volatility than the pricing.
How It Works
A bitcoin investment fund is a managed, tradeable investment fund. The fund creates and manages a portfolio of bitcoin, purchased with the invested stake in the fund. As the fund is directly pinned to the bitcoin, share valuation in the BIT rises as the portfolio’s value rises.
Unlike other BITs – which function similarly to EFTs in the sense that they are restricted to institutional investors that have been invited into the trust and are willing to pay a minimum investment – Greyscale is open to the public. There are no investor requirements to join the trust, although a would-be investor must find an OTC dealer willing to sell shares. The commodity exchanges do not list the Greyscale BIT currently as a sellable asset.
GBTC share pricing is advertised to be based on a set price per bitcoin. As GBTC share pricing is growing at a faster rate than bitcoin itself, there is suspicion that GBTC may be forming a pricing bubble. Per Grayscale, GBTC pricing is supposed to be at 0.0931 bitcoin. For May 19, for example, that means that GBTC should be at $191.13, instead of the $219 at which NASDAQ quoted the share. GBTC has a two percent annual fee that is applied to the share price.
Eligible to be held in tax-advantaged accounts such as Roth IRAs, investment in the Greyscale BIT can provide a tax break that pure bitcoin investment does not. Additionally, GBTC shares are:
- Assignable in the subscriber’s name, making them eligible for transferring under existing estate laws (Typically, bitcoins in a wallet are barrier instruments; the possessor of the wallet is the lawful owner of the bitcoin in the wallet.)
- Backed by assets stored in multisignature vaults managed by Xapo
- Subject to United States security laws and federal commodity protection rules
- Publicly quoted on the OTCQX ticker
Investors do not own any actual bitcoin in the trust’s pool, nor do they have control over how the bitcoin are managed.
Greyscale is tracked on the OTCQX ticker as an alternative commodity under the symbol GBTC. As it is against SEC rules to sell bitcoin-based ETF shares, GBTC is sold off-exchange through registered dealers.
Minimum Requirement for Investment
Unlike Greyscale’s Ethereum Classic Investment Trust, which requires the investor to have an earned income of at least $200,000 or a net income of over $1 million, GBTC has no requirements. Since the shares are unregistered and openly traded, they are available for anyone willing to buy them.
However, unlike bitcoin, GBTC shares cannot be bought anonymously. A new buyer is required to register his or her shares with Greyscale for commodity reporting reasons.
As with any investment, it is essential that you do your due diligence before investing. While GBTC is showing healthy growth, its pricing model may prove to be unsustainable in the near future. However, this instability may be a valid trade-off for the features these instruments offer.
There are other BITs in existence, but they are limited to enrollment to invited institutional partners. Thus, GBTC remains the only publicly available alternative to direct bitcoin ownership. For those unwilling to “take the dive,” GBTC offers an opportunity to take advantage of bitcoin’s historic growth in a managed, supervised investing environment. For those seeking an alternative to traditional commodity trading, BIT may be the perfect vehicle.
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