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What is the Grayscale Bitcoin Trust (GBTC) and how does it work?

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Why do investors buy grayscale BTC trust shares instead of buying BTC directly?

Original title: "Everything You Need To Know About The Grayscale Bitcoin Trust (GBTC)"

Originally written by Robert Stevens

0x13, rhythmically BlockBeats

Abstract

A grayscale Bitcoin trust is a financial instrument that allows investors to trade stocks in a trust fund that holds a lot of Bitcoin.

The fund's share price tracks the price of Bitcoin, but it is not identical.

Grayscale also offers a number of other exchange-traded products, with prices tracking the prices of cryptocurrencies such as Ethereum, Bitcoin cash and Litecoin.

What is the Grayscale Bitcoin Trust (GBTC)?

There is one way to invest in Bitcoin on the stock market: the Grayscale Bitcoin Trust (GBTC). It is one of several financial instruments that allow investors to trade shares in trust funds that hold large amounts of Bitcoin, each priced close to the price of bitcoin.

As of October 2020, grayscale Bitcoin trusts represent $6.5 billion of privately invested bitcoin assets. Grayscale, an American cryptographic investment company that is one of the world's largest bitcoin buyers, launched the trust in September 2013. It trades under the code GBTC.

According to Bitcointreasuries.org, the Grayscale Bitcoin Trust holds 456,537 bitcoins, making it 58% of the 786,059 bitcoins held by listed companies.

The grayscale Bitcoin Trust has made headlines many times for its rapid development. On June 9, 2020, the trust held 384,953 bitcoins, adding about 70 in four and a half months.(Note in Rhythm, the original author made a mistake in calculation here, and actually bought about 70,000 pieces within four and a half months)

Grayscale also made headlines again in 2020 with a massive advertising campaign to encourage investors to invest in trusts.

How does the Grayscale Bitcoin Trust work?

Here's how the grayscale Bitcoin trust works:

Grayscale invites wealthy private investors to pledge money to the fund to buy large amounts of Bitcoin.

Grayscale then listed the fund on a public stock exchange, meaning anyone could trade its shares.

The fund's share price tracks the price of Bitcoin, but it is not identical.

Shares in the fund can trade at a premium or discount to the actual price of bitcoin. Historically, they have almost always traded at a premium. This is good news for grayscale and its investors, who make money from the premium, but bad news for others.

So why would investors buy shares in a grayscale Bitcoin trust, rather than buying bitcoin directly? There are several reasons:

First, investing in bitcoin trusts gives people access to the currency without worrying about how to store it, whether it will touch the law or how to pay taxes.

If you're buying Bitcoin, there are a number of things you need to keep in mind at all times: How do you store it? Do you need to pay someone to keep your Bitcoin? What if you lose your keys or your Bitcoin wallet gets hacked? As a publicly traded trust that reports to the U.S. Securities and Exchange Commission, the Grayscale Bitcoin Trust takes those questions out of your mind.

Second, publicly traded Bitcoin trusts have various tax advantages. Some brokerage and investor accounts, such as IRA and Roth IRA, do not give tax breaks on bitcoin investments, but do give tax breaks on publicly traded trusts. Grayscale's trust provides those investors with bitcoin exposure in a tax-friendly way.

Third, encrypted transactions are very isolated. You can't trade Shares of Tesla and Apple with Bitcoin (without using an encrypted stock derivative platform). This cuts off the encryption economy from the traditional economy. However, as long as you list bitcoin on a stock exchange, traditional investors can invest in the cryptographic economy, albeit at a very high price and in limited Numbers.

The Grayscale Bitcoin Trust is by far the largest of several publicly traded trusts. Rival ETC Group had a market value of $60 million in its bitcoin products as of October 2020, while Wisdom Tree had a market value of $34.5 million.

In addition to the largest bitcoin product, Grayscale offers several other exchange-traded products. Its Ethereum Trust is the second largest product, managing THE $928m ETH. Other products include BCH, ETC, LTC, Stellar Lumens, XRP, Horizen, and ZCash, as well as digital large-cap funds containing BTC, ETH, XRP, BCH, and LTC.

The future success of grayscale trust is far less secure. Rival shares may represent a better price for Bitcoin than grayscale shares, or they may charge lower fees.

Grayscale Bitcoin Trust vs Bitcoin ETF

In addition, the grayscale model benefits from the fact that there are currently no Bitcoin etfs, or exchange-traded funds, in the market. In a grayscale Bitcoin trust, you are buying stocks in a trust; With an ETF, you are investing in a fund that tracks the price of Bitcoin directly.

Bitcoin etfs are not currently legal in the United States. The SECURITIES and Exchange Commission has rejected several applications for Bitcoin etfs on the grounds that the price of bitcoin can be manipulated. While US investors are waiting for a Bitcoin ETF (which the SEC may never approve), a Bitcoin trust is the next best thing.