Last update: Jun 9, 2021

Everything You Want To Know About GBTC

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Due to the increasing value and acceptance, Bitcoin has garnered more retail investment in the past few months.

On top of that, The Grayscale Bitcoin Trust, better known as GBTC, has become a hot topic among crypto investors in the past few months.

But what is GBTC? How does it work?

Why is it grabbing the widespread attention of more BTC investors?

In this article, we have explained everything you want to know about GBTC.

What is the grayscale Bitcoin Trust?

Grayscale Bitcoin Trusts

The Grayscale Bitcoin Trust, known by its ticker GBTC, is an indirect way to own Bitcoin.

Instead of purchasing Bitcoin (BTC) from a crypto exchange, you can buy the shares of the Grayscale Bitcoin Trust from the over-the-counter stock market (OTCQX).

The stock of the Grayscale Bitcoin Trust is sold under GBTC (OTC: GBTC). This trust holds a significant amount of Bitcoin, and the stocks are available through a conventional stock exchange.

The value of these shares is derived from the value of Bitcoin.

History of GBTC

Grayscale Bitcoin Trust

The Grayscale Bitcoin Trust was founded on the 25th of September 2013. However, at that time, the venture was known as The Bitcoin Investment Trust.

The financial vehicle soon received approval from FINRA, a significant step towards popularity. Since then, the company has sold shares through OTCQX, which is an over-the-counter market. 

The value of the GBTC shares is derived from the amount of Bitcoin held by Grayscale Investment and the number of people who have invested in the fund.

At the time of writing, a share of GBTC costs $54.25. Compared to the value recorded a year before, $7.25, it has been incredible growth. In the past years, the Trust has grown rather exponentially.

According to the statistics on 11th of September 2019, the GBTC held assets worth $2.16 billion. Of course, the numbers have increased in the two years that followed.

An investor can trade GBTC through brokerage firms and tax-advantaged accounts. Brokerage firms connect the buyers to sellers and charge a service fee for every successful transaction.

Tax-advantaged accounts are either exempt from income tax or offer other tax benefits. IRAs and 401(k)s are two common examples for these accounts.

Grayscale Investment offers other financial vehicles as well. For instance, it provides the Grayscale Ethereum Trust (ETHE) and Grayscale Stellar Lumens Trust.

The regularly increasing value of Bitcoin has fueled the growth and popularity of the GBTC.

How does it work?

How does it work Grayscale Bitcoin Trust

The Grayscale Bitcoin Trust works in three stages.

  1. In the first stage, Grayscale Investment has to create a fund. To generate this fund, the company will seek massive investments from affluent investors. Once the fund is enormous enough, Grayscale will use the amount to purchase and hold a considerable amount of Bitcoin.
  2. In the second stage, Grayscale will make this fund available on a public stock exchange. At this point, GBTC looks like any other security on the exchange. Any investor can use their resources to purchase shares of the Grayscale Bitcoin Trust.
  3. In the third stage, the value change occurs. As we mentioned earlier, the value of GBTC is based on Bitcoin’s price. However, most of the time, the value of a single GBTC share is higher than a single Bitcoin. It means the investor has to pay a premium, which then gets redistributed to the Grayscale investors.

Advantages of The Grayscale Bitcoin Trust

grayscale bitcoins Advantages

Following are some of the reasons why you should invest in GBTC shares.

  • While many investors want to own Bitcoin, they are worried about storing the cryptocurrency due to the increasing chance of attacks and security concerns. When buying GBTC shares, investors do not have to worry about this. Grayscale, the company, will take care of all the Bitcoin holdings. In other words, investors can get exposure to Bitcoin without worrying about security issues.
  • As we mentioned earlier, you can trade GBTC using brokerage firms, over-the-counter markets, and even tax-advantaged accounts. It means the investor does not have to deal with extra filings for tax-based purposes and legal procedures. After all, GBTC is publicly traded, and it makes reports to the United States Securities and Exchange Commission, which is a huge relief.
  • Investing in the Grayscale Bitcoin Trust also opens up a few tax advantages. Here is the thing: most brokerages are skeptical about providing tax breaks on Bitcoin investments. However, since GBTC is similar to conventional stocks, you can get these tax breaks. It means those who use GBTC get access to Bitcoin without paying extra taxes.

In addition to these advantages, the Grayscale Bitcoin Trust also helps increase the acceptance of the crypto economy.

Considering that cryptocurrencies cannot compete within the same markets as Apple and Tesla, but GBTC can, the publicly traded Bitcoin trust can invite more investors into the crypto economy.

Disadvantages of The Grayscale Bitcoin Trust

Since GBTC deals with cryptocurrency, we cannot precisely predict what happens next.

Nonetheless, when we factor in the increasing popularity of Bitcoin, the value of a GBTC stock will also witness a value boost.

We should also mention that more investors are looking forward to engaging with Bitcoin investments, and the hassle-free method provided by Grayscale seems impressive enough.

The bottom line

As you can see, the Grayscale Bitcoin Trust is a financial vehicle capable of impacting the crypto economy in the coming years.

As long as there is an increasing demand for Bitcoin, you do not have to worry about the stability or liquidity of GBTC either.