Insight For Those Considering GBTC

Some might ask “should I buy GBTC?” Others might ask “should I buy GBTC or BTC?” That is, “should I by the Bitcoin stock or actual Bitcoins?” Here is some insight.

  • Bitcoin is, in most respects, the world’s most popular cryptocurrency. Bitcoin’s price has been volatile, but its general trajectory has been up despite a few hard dips. Its a risky, but potentially exciting, bet for investors who are set up to trade it quickly or want to go long at a low price (plus it is useful as a digital currency).
  • The Bitcoin Investment Trust (GBTC) is a trust run by Greyscale that holds about 170,000 bitcoins. Investors can buy shares of the trust. A share represents just under 1/10th a Bitcoin (due to fees and such). In a perfect world GBTC would mirror Bitcoin’s price movement and value perfectly, like GLD does with Gold, but so far… that has been far from the case.

With the basics covered, the bottom line is that these are both good choices for investors, as long as investors understand what they are buying. Here are some things to consider:

  • GBTC has historically traded at a large premium to its NAV or Native Asset Value (meaning it has been trading for more than its worth on-paper historically).
  • BTC generally trades for what it is worth, because it is itself. Although what it trades for can differ by country and exchange.
  • GBTC can be traded via a traditional brokerage account, so you can for example use your 401K to buy Bitcoin indirectly this way.
  • BTC requires you to set up wallets and exchanges or use a broker. In other words, it requires setting up a program such as Coinbase/GDAX. That means there is a learning curve and another exchange to watch over if you are going to trade that way.
  • Buying and Selling BTC can result in hefty fees if you don’t use an exchange. Your broker will often have lower fees.
  • BTC is always the best buy on a dip, because if and when it recovers, the recovery is certain to be enjoyed by the investor (not true for GBTC). In other words, when the price of Bitcoin dips, the price is good (assuming it bounces back again, as it has in the past).
  • GBTC becomes a better buy the closer it gets to its NAV. It doesn’t necessarily become a good buy in a dip, because it is trading above its NAV. That can make timing a buy really complicated.
  • GBTC used to trade at near 200% of NAV, trading over $1k when BTC was at $5k. GBTC’s price to NAV has dropped considerably these days, now the premium is often [but not always] more reasonable. I just caught GBTC at $610 and BTC at $4.8k for a moment here on Oct 11, 2017 for example. UPDATE: For another comparison, on Nov 1st, 2017 GBTC was at $900 and Bitcoin was at $6.5k.
  • If you have Bitcoin and it forks into a new crypto, like Bitcoin Cash or Bitcoin Gold (or Segwit2x), then you get “free coins” (that is, you get one cash or gold for every BTC you have).
  • GBTC has been a little unclear on what they plan to do with their Bitcoin Cash, which is nail-biting on its own, but is even more nail-biting given the Gold fork and upcoming Segwit2x fork. If Greyscale adds those coins to the Trust, then the Trust will be worth more than its on-paper value. If they distribute money to those who hold the GBTC stock at the time, then it makes sense to buy before the fork. The thing is, because one doesn’t know for sure, there is added risk here. LATEST UPDATE: Read our updates on how GBTC is handling forks (its still unclear, but we know a bit more now; it looks like Bitcoin Cash will be distributed to holders of the trust). NOTE: Back in July the word was they were going to liquidate Bitcoin Cash and then distribute to those who held the stock at the time. INSIGHT: Arguably the best thing for the stock would for them to hold the coins created from the forks, as that would add to the value of the stock, not just rewarded those who held it on a specific date. Again though, the problem is, “we don’t know for sure what they will do… which makes the trust hard to value properly.”

The above of course isn’t professional investing advice, it is simply some considerations as to what to think about when considering buying GBTC or BTC. The bottom line being, GBTC is great, but the premium can be off-putting when its high and what they do with the hard forks really does matter… so them being somewhat unclear is not a plus. In general, GBTC is probably a good long term buy and a good short term buy, but it can have a mind of its own sometimes, and this can be a real challenge when BTC spikes or dips and GBTC doesn’t mirror it.

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What do you think?

Mike on

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What will be the best answer to this notice ?

Thomas DeMichele
Thomas DeMichele on

He is referring to:

I have to go over it and think on it and work through the implications of the language. My first impression is that this is partly about what they should do in regards to the forks. My stance is that they should simply hold all coins from forks (mirroring an investor who held).

Not 100% though that this is what it is referring to, comments welcome.

Mike on
Thomas DeMichele
Thomas DeMichele on

It is treated as though you accepted the terms if you do nothing (according to the document). The date has already passed, so it is essentially already a done deed.

In general you never HAVE to respond to anything like this from any type of security. Often if you have voting shares you’ll be asked to vote for or against, or offer feedback, on changes. If you do nothing, then you miss your chance to vote, but it has no negative effect on your ownership of the asset.