Does buying Grayscale Bitcoin Trust (GBTC) make more sense than BTC?

Key Takeaways:

  • Grayscale Bitcoin Trust, as an attractive alternative to BTC.
  • What are the pros and cons of GBTC?
  • Is investing in the Grayscale Trust safer?
Grayscale Bitcoin Trust, Does buying Grayscale Bitcoin Trust (GBTC) make more sense than BTC?

YEREVAN (CoinChapter.com) – Bitcoin (BTC) has been turbulent for the previous two months and shaved 35% off its value quarter-to-date, trading at just over $30,200 on June 2. However, experts think investing in Bitcoin products can cushion the blow and be safer than pouring funds into BTC directly. A veteran investor and author Alexander J Poulos offered Grayscale Bitcoin Trust (GBTC) as a “battle-tested” alternative.

Grayscale Bitcoin Trust as an alternative to Bitcoin

In detail, Grayscale Bitcoin Trust (GBTC) is a closed-end institutional fund. It offers digital currency investment products that individual investors can buy and sell in their own brokerage accounts.

Grayscale’s products operate within existing regulatory frameworks, and its hallmark products are the first SEC reporting funds in the industry.

further clarifies the website.

Poulos noted that the Grayscale Bitcoin Trust holds a whapping 630,000 BTC, which is roughly 3% of the total flow. Moreover, the company has been a publicly-traded entity with “excellent custody solutions” for years.

Grayscale Bitcoin Trust (GBTC) stock price, compared to Bitcoin. Source: TraidngView.com
Grayscale Bitcoin Trust (GBTC) stock price, compared to Bitcoin. Source: TraidngView.com

Also read: Bitcoin prices unfazed by Grayscale’s epic 18K GBTC unlock event.

However, investors cannot trade at net asset value (NAV). In detail, the discount to NAV on GBTC is around 25%. As the expert noted, beginner traders tend to find the discount appealing, while long-term holders could take issue.

BTC vs. GBTC; How does it work?

As of June 2, the company has $19.2 billion in assets under management and offered a 32% discount for GBTC. It means that Grayscale currently holds $27.8 worth of Bitcoins per share in their treasury. However, stock market traders can buy the same Bitcoin-backed GBTC share for $19.46, or 32% less than the Grayscale holding price per share.

Grayscale Bitcoin Trust (GBTC) discount.
Grayscale Bitcoin Trust (GBTC) discount.

Also read: Again, Peter Schiff expresses disdain towards crypto, says market collapse has begun.

The Discounted GBTC is typical for bear markets. I.e., when enough traders sell their GBTC, the stock’s actual value is less than the Bitcoin Grayscale has in its GBTC Trust. Thus, a GBTC investment, which comes with a 2% management fee, is a way to reduce the volatility risks associated with Bitcoin trading.

Is investing in GBTC safer?

One of the reasons Alexander J Poulos singled out GBTC as a better alternative is the potential for the Trust to turn into a Bitcoin spot exchange-traded fund (ETF). Simply put, the difference is the following. When investors buy up GBTC, Grayscale does not use the funds to purchase more BTC, and vice versa. Hence the need to implement discounts and premiums to NAV.

However, a spot ETF would balance out the price of its product by buying and selling the underlying asset. Thus, an ETF would close the discount to the net asset value (NAV), promising gains to investors.

I am of the opinion that GBTC will convert to an ETF thus vaporizing the steep discount. I view the discount as a form of a “dividend” that will be taxed as a capital gain versus regular income.

commented the expert.

He also asserted that it would most likely take a few years until the Securities and Exchange Commission (SEC) approves a Bitcoin spot ETF. Poulos further mentioned that “the discount to NAV more than offsets the fee.”

Also read: Bitcoin to $20K likely as Fed minutes show more aggressive rate hikes.

As mentioned, GBTC investment is a way to reduce volatility exposure associated with Bitcoin trading. Trusting Grayscale with the potential digital asset investments also poses risks. Nevertheless, considering all the factors listed above, GBTC is an attractive option if the regulatory framework catches up with the company’s plans and approves the Trust’s transition into a spot ETF.

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Grayscale Bitcoin Trust, Does buying Grayscale Bitcoin Trust (GBTC) make more sense than BTC?

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