I recently came across an article on Motely Fools titled,
I’m so glad Motley Fools kept it real.
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.
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.
So with that background lets get into what the article said.
Currently, the Grayscale Bitcoin Trust holds just over 210,000 bitcoin. Each share of the trust corresponds to slightly less than one-thousandth of a bitcoin, giving the trust a net asset value currently of a bit less than $4 per share with prevailing bitcoin prices near $4,000.
Grayscale is the company behind the Grayscale Bitcoin Trust, and as its sponsor, it collects an annual expense ratio of 2% to cover its costs in managing the trust. Unlike similar funds, however, the trust’s bitcoin holdings don’t generate any income that Grayscale could use to cover those costs. As a result, Grayscale has to sell off some of its bitcoin holdings to collect its fee. Technically, that’s resulted in each share now corresponding to 0.00098576 of a bitcoin rather than 0.001, and the exact figure will keep falling over time.
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 premium to its assets under management.
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.
I would suggest to stay away from GBTC, but if you must get involved, lets go to the charts to see what the key levels are.
The levels in play at the daily demand at $4.10 and the daily supply at $7.25. If price is going to move higher, price must close above the $5 level first.
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.