Grayscale Bitcoin Trust, or GBTC, is the world’s largest digital asset management firm.
If you are interested in Bitcoin, chances are that you might have heard about an entity named Grayscale Bitcoin Trust. If you are wondering what the fuss is about, here is a primer to help you play catch up.
What is Grayscale Bitcoin Trust?
To start with, Grayscale Bitcoin Trust, or GBTC, is the world’s largest digital asset management firm and also the first of its kind to be registered with the US regulator Securities and Exchange Commission (SEC) as a reporting company. What this means is that the company reports its financials to the SEC, which is a plus as it increases transparency. The firm is said to hold nearly 6.5 lakh Bitcoins—a little over 3 percent of the total Bitcoins in circulation—that, as per current prices, are worth $36.6 billion. Currently, each Bitcoin has a value of nearly $56,400. Interestingly, the company is said to be the second-largest holder of Bitcoin after Satoshi Nakamoto, the pseudonymous inventor of Bitcoin who is believed to own 1 million Bitcoins.
How can one invest in Bitcoins through GBTC?
GBTC, which was launched in 2013 as Bitcoin Investment Trust, offers accredited investors—defined by SEC on the basis of certain income and net worth criteria—an opportunity to invest in the cryptocurrency. The minimum investment size is pegged at $50,000 while some of the other funds of the firm have a minimum investment size of $25,000. The funds also charge annual fees ranging between 2 percent and 3 percent. Accredited investors can buy or sell their shares through private placement.Retail investors got an opportunity to own a slice of the fund in January 2020 when it became an SEC reporting company that allowed accredited investors to sell their shares in the secondary market after an initial lock-in period. Currently, GBTC shares are trading at around $52 apiece.
How has been the demand for GBTC shares?
Short answer: huge. The demand for GBTC has been soarsing so much that in the current calendar year, the shares of the company have gained over 60 percent while the S&P 500 benchmark index is up less than 4 percent. The fund saw its assets grow from $2 billion to over $20 billion in 2020 as demands from entities like pension funds, endowments and hedge funds registered a huge spike. As per the fund’s regulatory filings, average commitment of institutional investors rose to $6.8 million in the fourth quarter of 2020 from $2.9 million in the prior quarter.
What are the risks involved in investing in GBTC?
To start with, a large section of market participants has often said that the share price of GBTC does not reflect the price of the underlying Bitcoin assets and that the fund charges a huge premium along with the high annual fees. There have been instances when the shares were trading at a premium, which was double the value of the underlying Bitcoin assets of the fund. GBTC attributes such premium to supply and demand forces. In the recent past, the premiums have move in a range of 5 percent to as much as 40 percent as Bitcoin prices continued to touch record highs while generating higher demand.In 2017, well-known investor Andrew Left of Citron Research publicly urged the SEC to look into GBTC while saying that the fund is a “far more dangerous instrument being marketed to ‘mom & pop’”. It further added that GBTC will lose its advantage when more options, including the more transparent and regulated exchange-traded funds (ETFs) are available for Bitcoins.To be fair though, much has changed since then including the fact that GBTC has become a SEC reporting entity. Many market participants attribute the share premiums to the hassle-free process that the fund offers to own Bitcoins. Since its shares are publicly traded, an individual can buy or sell through any broking platform.
Does GBTC offer investment options in other cryptocurrencies as well?
In early 2018, GBTC launched a fund called Grayscale Digital Large Cap Fund through which investors can gain exposure to a basket of cryptocurrencies. Apart from Bitcoin, the Digital Large Cap Fund also has an exposure in Bitcoin Cash, Ethereum and Litecoin. Currently, the fund has assets under management worth nearly $493 million. The popularity of the fund can be gauged from the fact that its shares have gained nearly 87 percent in the current calendar year while the last 12 months return has been a whopping 438 percent. GBTC also has single-asset funds focussed on Horizen, Ethereum, Litecoin, Bitcoin Cash, Zcash and Stellar Lumens.
Can Indians invest in GBTC shares?
While there are a few trading platforms in India that offer overseas trading facilities to Indian investors, GBTC shares are not part of the offering since the shares are traded in the OTC—over the counter—market and not on an exchange like NYSE or Nasdaq. Current regulations bar such platforms from offering trading in shares of firms listed on OTC markets.