Don't Touch The Bitcoin Investment Trust (GBTC), Even With A 10 Ft Pole
The Bitcoin Investment Trust (GBTC) is a vehicle for retail traders to speculate on Bitcoin. I started to recommend buying GBTC because it was sitting in a demand zone.
Unfortunately, like myself, many retail traders don’t fully understand the ins and outs of GBTC. So I decided to do some research before deciding to buy GBTC for my IRA.
Although many in the investment world call GBTC an ETF, it's not, it’s a trust. It is not registered with the (Securities and Exchange Commission) SEC under the Investment Company Act of 1940 and it doesn't trade on an exchange. It trades on the over-the-counter market, which has less stringent participation rules than exchanges. However, the trust is appealing because you can buy and sell it for tax-advantaged accounts such as IRAs, Roth IRAs and 401(k)s.
GBTC is a trust which buys and holds bitcoin and doesn’t hold any other asset. The trust was initially launched as a 506 (c) private placement in September 2013 and is managed by Grayscale Investments.
NOTE: A trust (an investment trust) is a company that owns a fixed amount of a given asset (like gold or bitcoin). Investors pool money and buy shares of the trust, owning contracts that represent ownership of the asset held by the trust.
In May 2015, Grayscale gained regulatory approval to improve liquidity for its private investors by having shares of the trust trade on the U.S. OTC Market.
In mid-December, each share of the GBTC represented 0.0919 bitcoins. However, in late January, Grayscale declared a 91-for-1 stock split for the trust for shareholders. The reason for this split was to decrease the price of an individual share to make it more accessible to more retail investors. After the split, every share represented around 0.00101 bitcoins.
Unfortunately, due to the fact it's currently the only bitcoin trust of its kind with approximately 177 million shares outstanding, traders have driven the price of the GBTC way above the value of the bitcoin it holds. GBTC has consistently traded at a 50% premium to its assets under management.
Each share of the GBTC trust represents ownership of 0.00101 bitcoins. The current price of bitcoin is $8358, which means a single share of the GBTC represents $8.44 worth of bitcoin at today’s price. However, the GBTC is currently trading at $14.25 per share. When you consider the 2% management fee as well, this is a very risky investment for retail investors that want to get involved with bitcoin. What makes it worse is when the SEC does approve other Bitcoin products, the price for GBTC is mostly likely to go down.
Stay away from GBTC and don't touch it even with a 10 ft pole, you are better off buying physical, I mean digital Bitcoin.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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Seems like it might be a pair trade opportunity. Short the trust, long actual BTC. Over time you'll pick up the premium (hopefully), the management fees (definitely), less your margin cost (also definite).
That's if it's shortable though.
That's another option, but I think the risk outweigh the rewards...appreciate your comment.
Totally agree with you here! The premium demonstrates the demand and speculation of the asset class in general. Many investors trying to get in without being exposed to the technology aspects of the asset like wallets and security. The other concern os that liquidity could be questionable and highly uncertain if something fundamentally changes. Great post!
Thanks @Newageinv and agree, although I indirectly talk about the lack of liquidity, you point out another major red flag because people who are in and want out, may not be able to get out, at least not at their preferred selling price.
This kinda stuff will continue to appear in the upcoming months.
Some retail traders are scared about the complexity and the legal uncertainity to invest in cryptocurrencies.
So "smart" people will try to get advantage of them with stuff like GBTC.
Definetely GBTC is not for me!
Agree, the "Smart Money" strikes again.
Release the Kraken! You got a 35.21% upvote from @seakraken courtesy of @rollandthomas!
You got a 19.05% upvote from @luckyvotes courtesy of @rollandthomas!
interesting post, thanks