What is the Grayscale Bitcoin Trust (GBTC) and how does it work?
Editor's Note: This article comes fromBlock beats BlockBeats (ID: BlockBeats)Editor's Note: This article comes from
Block beats BlockBeats (ID: BlockBeats)
Block beats BlockBeats (ID: BlockBeats)
, Author: Robert Stevens, translation: 0x13, reprinted with authorization by Odaily.
The Grayscale Bitcoin Trust is a financial instrument that allows investors to trade shares in a trust that holds large amounts of Bitcoin.
The fund's share price tracks the price of bitcoin, but not exactly.
Grayscale also offers a number of other floor-traded products whose prices track the prices of cryptocurrencies such as ethereum, bitcoin cash and litecoin.
What is Grayscale Bitcoin Trust (GBTC)?
There is a way to invest in Bitcoin in 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 bitcoin price.
As of October 2020, the Grayscale Bitcoin Trust represents $6.5 billion in privately invested Bitcoin assets. Grayscale, an American crypto investment firm and one of the world's largest purchasers of bitcoin, launched the trust in September 2013. Its trading symbol is "GBTC".
Grayscale Bitcoin Trust holds 456,537 bitcoins, or 58 percent of the 786,059 bitcoins held by listed companies, according to Bitcointreasuries.org.
The Grayscale Bitcoin Trust has made headlines several times for its rapid growth. On June 9, 2020, the trust held 384,953 bitcoins, an increase of approximately 70 bitcoins in four and a half months.
Grayscale also made headlines again in 2020 with a massive ad campaign encouraging investors to invest in trusts.
How does Grayscale Bitcoin Trust work?
The working principle of Grayscale Bitcoin Trust is as follows:
Grayscale invites private wealthy investors to pledge funds to the fund, which will be used to purchase large amounts of bitcoin.
Grayscale then lists the fund on a public stock exchange, meaning anyone can trade its shares.
The fund's share price tracks the price of bitcoin, but not exactly.
The fund's shares can trade at a premium or discount to the actual price of bitcoin. Historically, they have almost always traded at a premium. That's good news for Grayscale and its investors, who make money from that premium, but bad news for other investors.
So why should investors buy shares in the Grayscale Bitcoin Trust instead of buying Bitcoin outright? There are several reasons:
First, investing in a bitcoin trust allows people to gain access to bitcoin without worrying about how to store bitcoin, whether it will touch the law, and how to pay taxes.
If you're buying bitcoin, there are a lot of things you need to keep in mind at all times: How do you store it? Do you need to pay someone to hold your bitcoins? What if you lost your keys or your bitcoin wallet was hacked? As a publicly traded trust company that reports to the U.S. Securities and Exchange Commission (SEC), Grayscale Bitcoin Trust takes these concerns out of your hands.
Second, publicly traded bitcoin trusts have various tax advantages. Some brokerage and investor accounts such as IRA and Roth IRA will not give tax benefits to Bitcoin investment, but will give tax benefits to publicly traded trust investments. Grayscale’s trust company provides those investors with exposure to Bitcoin in a tax-friendly way.
Third, crypto transactions are very siled. You cannot trade Tesla and Apple stocks with Bitcoin (without using a crypto stock derivatives platform). This cuts off the link between the encrypted economy and the traditional economy. However, as long as you list Bitcoin on a stock exchange, albeit very expensive and in limited quantities, traditional investors can invest in the crypto economy.
Grayscale Bitcoin Trust is currently the largest trust fund among several publicly listed trust funds. As of October 2020, competitors ETC Group's bitcoin offering has a market capitalization of $60 million, and Wisdom Tree's bitcoin offering has a market capitalization of $34.5 million.
In addition to the largest bitcoin offering, Grayscale also offers several other floor-traded products. Its Ethereum Trust is the second largest product, managing $928 million worth of ETH. Other offerings include BCH, ETC, LTC, Stellar Lumens, XRP, Horizen, and ZCash, as well as digital large-cap funds that include BTC, ETH, XRP, BCH, and LTC.
Grayscale Trust's future success is far less secure. The shares of its rivals may be a better proxy for the price of Bitcoin than Grayscale's stock, or they may charge lower fees.
