Everything You Need to Know About the Grayscale Bitcoin Trust

Advantages of GBTC

Let's look at the advantages and disadvantages of the GBTC in more detail. At the moment, the fund is primarily focused on those who are interested in investing in BTC anyway, but who have some concerns about doing this. That's a good starting point for understanding the value of the GBTC: Why would one purchase shares in GBTC rather than buying BTC directly?

There are a number of reasons. One is that working out how to store Bitcoin securely can be difficult. Another is that filing taxes for gains made on shares — such as those from investing in GBTC — is much less complex than the tax regime that applies to crypto holdings. And then there is the fact that many people still feel uncomfortable putting large sums into BTC, especially given the recent revelations that 95% of BTC trading is fake. 

GBTC is an investment that is overseen by the SEC, but still has significant exposure to the price of Bitcoin, allowing risk-conscious investors to take advantage of price shifts.

Disadvantages of GBTC

On the other hand, there are a number of disadvantages of investing in GBTC, as opposed to buying Bitcoin directly. The first, and most obvious, is that since shares in the trust trade at a premium, they come with a significant up-front cost. This up-front cost is likely to be unimportant in an investment that lasts for five years or so, but by that time GBTC could have plenty more competitors than it does now (and which we'll look at below).

Secondly, because the GBTC doesn't track the price of Bitcoin directly, it can take a while for price fluctuations in BTC to be reflected in the price of the GBTC. 

How Can I Buy GBTC?

The trust is traded on the over-the-counter market. Investors can buy shares in GBTC just as they would other stocks and shares — through a broker or advisor, or via an online trading platform. That opens up a whole range of options for investors. With instruments like GBTC, investors can trade BTC against stocks in other companies, albeit in quite a limited, expensive way.

Is There Competition to the Grayscale Bitcoin Trust?

There are some direct competitors for the GBTC, though none are able to match its size or buying power. The GBTC is just one of several trusts being traded publicly with significant BTC exposure. 

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But the GBTC might be rendered obsolete fairly soon. Many firms have been struggling to get a BTC ETF approved for much of the last decade, and the GBTC has undoubtedly benefited from the lack of a full Bitcoin ETF. However, with the recent news that the very first Bitcoin ETF — the Purpose Bitcoin ETF — has been approved in Canada, more expensive funds like GBTC could lose traction.

The Bottom Line

Ultimately, the Grayscale Bitcoin Trust allows investors to gain exposure to the Bitcoin marketplace in a way that simplifies taxes and storage, and provides federal oversight. But those benefits come at a relatively high cost. And so, while advisors shouldn't ignore BTC funds like the GBTC, the average investor is likely to make only small investments into stock market BTC tracker funds. Until, that is, we get a full-fledged Bitcoin ETF — because that will be a game changer.

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