GBTC: Why is it Trading at a Lower Price Than BTC?
GBTC, or Grayscale Bitcoin Trust, is a digital asset released by Grayscale Investment to help investors gain exposure to Bitcoin without getting into the crypto market. But what makes GBTC trades lower than the current BTC price today?
January 11, 2023
Key Takeaways:
- Grayscale Bitcoin Trust is a digital asset that has Bitcoin value without investing in real Bitcoin. This investment is similar to an exchange-traded fund (ETF).
- GBTC have their value from
- Since 2021, GBTC has been lowering their trades. At the time of writing, GBTC has been discounted near 50%.
What Is GBTC?
Grayscale Bitcoin Trust (GBTC) is a digital asset investment product offered to investors in the form of shares in a trust whose value is close to the price of Bitcoin. GBTC helps investors gain exposure to Bitcoin without getting into the crypto market.
Not only Bitcoin, but Grayscale also offers several other cryptocurrencies as part of its products, such as Grayscale Ethereum Trust, Grayscale Bitcoin Cash Trust, and Grayscale Litecoin Trust.
How does GBTC Works?
Now you are wondering how GBTC got its value. The price of the trust or fund fluctuates based on the underlying net asset value (NAV), which is affected by the asset's demand. An investor can buy a portion of the asset by purchasing shares in the fund. The Grayscale Bitcoin Trust pools funds in US dollars (USD) raised from institutional investors and used them to buy BTC outright. This supply of BTC is then stored in Grayscale funds, essentially making Grayscale institutions the actual owners of BTC. You can then buy GBTC shares and indirectly own BTC.
Since Grayscale became a publicly traded fund in 2015, various investors have poured large sums of money into GBTC by purchasing Grayscale shares during bull market cycles. Grayscale has used that capital to buy more BTC.
How Does GBTC Get Its Value?
Similar to Bitcoin, the value of GBTC is determined by the supply and demand for it on the market. The price will rise when demand for GBTC is high, and there are more buyers than sellers. The price will tend to fall when there is low demand and more sellers than buyers. The performance and adoption of Bitcoin, general market conditions, and investor sentiment also influence the value of GBTC.
Why is GBTC Price Currently Lower Than BTC?
As we know, the GBTC price is decided by the BTC's current price. But since 2021, GBTC has kept discounting their trades, and currently, they are at a 43% discount to Bitcoin due to uncertainty over its holdings and the fact that investors have been selling. More importantly, the fact that GBTC is not an ETF means it can't arbitrage this discount in the open market. This steep discount represents a possible opportunity for those who want to gain exposure to Bitcoin.
Risk of Investing in GBTC
Different from investing in real Bitcoin, from investing in GBTC, you will be charged a 2% annual fee. On top of that, you have to pay a premium to buy shares when demand is high. Of this fact, we assume that there are better choices than GBTC for smaller investors because you need a minimum investment of US$ 50,000 to buy into Grayscale Bitcoin Trust.
Compared to investing in real BTC, GBTC might not be as profitable as Bitcoin because the value of GBTC shares doesn't accurately match the value of Bitcoin. The GBTC shares have been trading at a discount since early March 2021, and they're now trading at a record low 45.08% discount to Bitcoin's net asset value.
So, if you buy GBTC shares today, you'll receive less BTC than you'll get through buying BTC directly with the same amount you spent.
GBTC vs Bitcoin ETF: Which One is Better to Invest
The Bitcoin ETF is similar to GBTC. GBTC is benefitted from the absence of a Bitcoin ETF.
GBTC and Bitcoin ETF are similar. Both are selling stocks – their value is 1:1 with Bitcoin. The goal is to let investors invest in Bitcoin without jumping into the crypto market.
An ETF sells its shares to investors through the open market and uses the proceeds to build a portfolio of assets based on a market index, a stock market sector, or other asset class like crypto.
GBTC has always been a viable option for only a small group of wealthy investors. Moreover, it not only faces hurdles in becoming a spot Bitcoin ETF but has also faced serious criticism over its refusal to share its proof of reserves. Given these risks in investing with GBTC, it may be cheaper and safer for retail investors to own Bitcoin directly, despite the current volatility of the crypto market.
