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 many hard dips. Its a risky, but potentially exciting bet for investors who are set up to trade it quickly or want to go long and a low price (plus 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, like GLD does with Gold, but so far… that has been far from the case.

Both of these are 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. In other words, 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. In other words, when the price dips, the price is good.
  • 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 more reasonable. I just caught GBTC at $610 and BTC at $4.8k for a moment here on Oct 11, 2017 for example.
  • If you have Bitcoin and it forks into a new crypto, like Bitcoin Cash or Bitcoin Gold, 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 with the upcoming Bitcoin Gold hard fork. If they add those funds 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. 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. The best thing for the stock would likely be to hold it, so while this makes buying GBTC for the Bitcoin Gold for attractive… it makes the stock outside of that less attractive (as Bitcoin Cash would have added value to the stock, not just rewarded those who held it on a specific date).

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 it being somewhat unclear is not a plus.

What do you think?