The world's largest digital asset investment firm, Grayscale Bitcoin Trust (GBTC), is the second-largest holder of bitcoin, holding more than 3% bitcoins.
The Grayscale Bitcoin Trust (GBTC) is a reporting company registered under the US Securities and Exchange Commission regulators. It is the first digital currency investment firm to become a reporting company by the SEC.
Launched in 2013, GBTC helps investors to invest in cryptocurrencies. Investors can buy and sell bitcoin in their accounts. It was registered with the SEC in 2020 and became the first digital currency investment company to report to the SEC. Companies that report to the SEC have increased transparency, which investors trust. According to regulations, accredited investors have an early liquidity prospect, as their holding period gets reduced from 12 months to 6 months.
The GBTC is the second-largest holder of Bitcoin. The largest holder is Satoshi Nakamoto, the Bitcoin inventor. GBTC holds almost 3% of the total Bitcoin, which amounts to roughly around $36.6 billion in the current price.
Trading is made on the over-the-counter market (OTCOX). Accredited investors who want to subscribe to the Trust for private placement require a minimum investment of $50,000. Investors can also purchase less quantity through the GBTC public quotation. GBTC is the symbol under which investors can buy and sell Grayscale Bitcoin Trust shares.
Grayscale Bitcoin Trust Asset Class
The US dollar and gold were considered as safe-haven assets for many years. But the pandemic has brought changes in investment attitude. Investors, especially the young generation, are investing in cryptocurrency. Though volatility is one of the drawbacks of cryptocurrencies, it is also one of its charming features that attract more investors. Investors can reap huge profits when crypto prices see a sharp surge.
Big corporates and leaders have introduced the crypto markets to more users. CEO Elon Musk has openly disclosed his interest in cryptocurrency through several tweets that have moved the crypto prices. Tesla, PayPal, and Visa were some big companies that had announced their acceptance of cryptocurrency payments. It had introduced more users into the cryptocurrency market.
However, the lack of a proper regulatory measure keeps investors wary about their crypto investments. As there is a lack of transparency about the actual investor, the crypto market encourages illegal money transactions, warns banking regulators.
The increase in the value of Bitcoin prices has correspondingly appreciated GBTC assets too. In December 2020, the trust's assets had increased by $17.7 billion, which is an increase of 848%.
Institutional buying is coming into the cryptocurrency, which is almost $3.3 billion of inflow, says the company, making it one of the fastest-growing investment products.
For the last quarter of 2020, institutions have contributed to almost 93% of their capital inflow. Apart from institutional investors, the demand for cryptocurrencies has increased from big investors like hedge funds, pension funds, and endowments.
GBTC Inspires New Crypto Investors
Security is one of the chief issues in cryptocurrencies that investors are wary about. The Grayscale Trust addresses such security concerns as investors are safeguarded by industry-leading security standards using a robot security system.
Investors do not have much exposure for direct investment into the digital asset, and Grayscale Bitcoin Trust is a good alternative for investors who are new to the crypto market. Bitcoin prices are available on the TradeBlock XBX Index. BTC owns and keeps track of Bitcoin.
GBTC shares follow the movement of Bitcoin prices and move in an upward or downward direction, according to the performance of Bitcoin, though not always. The demand for GBTC is increasing, especially as its share value has gained almost 60% in the current year. GBTC shares have moved from $35 at the beginning of January 2021 to $56 on February 19, 2021. Investor sentiment is the chief factor that affects GBTC stock prices.
Disadvantages of GBTC
GBTC charges a high premium, along with an annual fee of 2.0%. Since it is the only single Trust in the market, investors have to pay a high premium. Accredited investors can get their shares through private placement. After registering as a reporting company into the SEC in 2020, GBTC shares could be sold in the secondary market after a minimum period.
Further, the cryptocurrency market is highly volatile, and investors have to consider the large fluctuations in the crypto prices while investing. Crypto prices are dictated by the market and not by Grayscale. The value of GBTC shares does not always reflect the price of Bitcoins.
GBTC is only a trust that holds Bitcoin and investors are not protected by grantor trusts. Investors become a part of the grantor trust that is not regulated by the Commodity Futures Trading Commission (CFTC). However, the fund provides a hassle-free environment to purchase and sell bitcoins.
Apart from Bitcoin, the GBTC offers investment opportunities in Litecoin, ethereum, and Bitcoin Cash through its Digital Large Cap Fund.
