What is GBTC? What you should know about the Grayscale Bitcoin Trust
What is Grayscale Bitcoin Trust?
Grayscale Bitcoin Trust is the world’s largest Bitcoin fund and the first investment vehicle to regularly report to the United States Securities and Exchange Commission (SEC).
Grayscale Bitcoin Trust was originally named The Bitcoin Investment Trust on September 25, 2013 and was sold privately to accredited investors. It is then approved by FINRA for qualifying shares listed on the exchange. This means investors with the symbol GBTC will have access to buy and sell public shares of the Grayscale Bitcoin Trust. Grayscale (the issuer) calls it a traditional investment vehicle with shares on behalf of investors. While the Trust product itself is not an ETF, Grayscale says it was inspired by popular commodity investment products such as the SPDR Gold Trust, a physical, gold-backed ETF.
As of July 2021, GBTC had approximately $21 billion in assets under management (AUM). See the table below for today’s latest updates.
As an over-the-counter investment vehicle, GBTC is available to investors to buy and sell like almost any US security. For example, GBTC can be traded through brokerage firms and is also available on tax-advantaged accounts. such as an IRA or 401(k).
How does GBTC work?
Although the idea behind GBTC is to open up the era of crypto investment to as many people as possible, in practice it is not possible to simply buy funds at market rates. That’s how it works.
First, Grayscale invites a group of wealthy investors, contributes money to the fund, and they use the money to buy Bitcoins. Subsequently, Grayscale put the fund on a public exchange, allowing anyone to buy and sell shares.
If the bitcoin price goes up (or down), the value of the fund follows that price. This means that the fund itself, as well as the shares in it, follow the price of BTC. The process means accredited investors – or those who have been invited to contribute to the fund in a private first round – earn direct income from the resale of their shares.
Should you invest in GBTC?
It depends on the investors’ priorities and risk appetite. There are some advantages to owning bitcoins indirectly – which we’ll explain below – but a fund like GBTC also has some disadvantages, such as: B. relatively high input costs.
Thus, GBTC should only be a small part of the average investor’s portfolio. As a general rule, you shouldn’t invest more than 15% of your portfolio in BTC, which limits the amount the average person should invest in a fund like GBTC.
Pros and cons of GBTC
Let’s take a closer look at the pros and cons of GBTC. Currently, the fund is mainly for those who wish to invest in BTC, but there are some concerns. This is a good starting point for understanding the value of GBTC: why buy GBTC shares instead of buying BTC outright?
There are various reasons. The first is that figuring out how to store bitcoins safely can be difficult. Another thing is that paying taxes on stock gains – like investing in GBTC – is less complicated than the tax system that applies to crypto holdings. And the fact is that there are still many people who don’t like investing a lot of money in BTC.
GBTC is an SEC regulated asset but still has a significant impact on the price of Bitcoin, allowing risk-aware investors to take advantage of price fluctuations.
On the other hand, there are disadvantages of investing in GBTC compared to buying Bitcoin outright. The first, and most obvious, is that because mutual fund shares trade at a premium, they have high initial costs. This up-front cost may not matter for an investment lasting 5 years or more, but at this point GBTC probably has more competitors than it currently has (and we’ll get to that below).
Second, because GBTC does not track Bitcoin prices directly, it may take some time for BTC price movements to be reflected in GBTC prices.
How to buy GBTC
GBTC is traded over-the-counter. Investors can buy GBTC shares in the same way they buy stock and other shares – either through a broker or advisor, or through an online trading platform. This opens up many opportunities for investors. Tools like GBTC allow investors to exchange BTC for shares in other companies, albeit in a somewhat limited and expensive way.
Trusted Competitor of Grayscale Bitcoin
There are several direct competitors to GBTC, although none can match its size or purchasing power. GBTC is just one of many publicly traded trusts with significant exposure to BTC.
But GBTC could soon become obsolete. Many companies have struggled to get Bitcoin ETF approval over the last decade, and GBTC has certainly benefited from the lack of a full Bitcoin ETF.
Other Grayscale Products
Apart from the Grayscale Bitcoin Trust – GBTC, the Grayscale company has several other products being worked on and researched, which you can refer to below.
Finally, the Grayscale Bitcoin Trust offers investors access to the bitcoin market in a way that simplifies taxes and custody and provides federal oversight. However, these advantages come at a relatively high cost. So while advisors shouldn’t ignore BTC funds like GBTC, the average investor is likely to only make small investments in funds that track BTC on exchanges. Until we get our hands on an official Bitcoin ETF – because it’s a game changer.
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