What is GBTC and What Makes it So Special?
The Grayscale Bitcoin Trust (GBTC) is an investment vehicle allowing investors to buy and sell its shares via stock trading platforms. In January 2020, GBTC became the first digital currency trust reporting to the SEC reporting company.
GBTC can be traded exactly like an individual stock
This is a more familiar process to most investors compared to attempting to learn the ropes from scratch in Bitcoin investment.
Convenience in Bitcoin investment though stock trading platforms
This eliminates the need to set up and manage crypto wallets.
Investors can have exposure to Bitcoin without legal complications
Securities law around stock market is clearer, whereas the laws surrounding the cryptocurrency market remains relatively muddled. In this sense, there is more clarity when an investor owns GBTC compared to Bitcoin.
Bitcoin custodial storage and insurance against loss or theft is covered
As Grayscale operates as a trust holding Bitcoin on behalf of the investors, the management is also responsible for cryptocurrency custodial storage and insurance as well. This allows investors to bypass the relevant technical know-how in owning Bitcoin.
GBTC vs Bitcoin Chart: Does GBTC track the price of Spot Bitcoin?
Some may say this is close enough. But this no longer holds true when GBTC shares were trading at a discount close near 50% to the Bitcoins held by Grayscale.
Mostly Trading at a Premium to NAV
Since being listed on the United Stats Over the Counter (US OTC) market in May 2015, GBTC has mostly been trading at a premium to the net asset value (NAV). At the material time, this is of course good news to the investors of GBTC shares, as high demands also meant that investors can easily exit at a profit.
How is Premium to NAV Calculated
The premium to NAV is a percentage that calculates the amount that GBTC is trading above or below its net asset value. This metric tracks how far GBTC shares are trading away from the true value of Bitcoin held by Grayscale. The premium to NAV formula is:Premium to NAV = (Price / Net Asset Value) -1If the answer is negative, this means that GBTC is trading at a discount to NAV instead of a premium.
Then, the Crypto Winter Arrived
All hell started to break loose starting year 2022. With the market being full of FUD, a significant number of major digital asset players have been severely damaged, including:
Terra Luna
Two major products of the project, LUNA and UST, crashed more than 99% in just a short span of three days, triggering a series of liquidation in the crypto market. And Bitcoin price is no exception to this.
FTX
One of the leading crypto centralized exchange (CEX) back in 2017-2022 led by Sam Bankman-Fried. This massive scale of fraud led the entire crypto market to dip below critical price levels, shattering trust of investors in digital assets.
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Digital Currency Group (DCG)
Being the parent company of Terra Luna, it is no surprise that DCG lost big this crypto winter. As DCG is also the parent company to Grayscale, this in turn means that Grayscale would also be walking on thin ice.
Why is GBTC Trading at a Discount?
The simple answer is: Everyone is selling in a bear market. And GBTC investors are no exception to this. It is important to remember that GBTC is traded similar to stocks. In a situation where the sell momentum for GBTC is greater than the sell momentum of spot Bitcoin, this is when GBTC turned from trading at premium to trading a discount.
Naturally, when discounts sink so deep, the instinct of any investors is to exit the market at the lowest possible losses. However, this proved to be unnecessarily restrictive in the case of GBTC. On top of the exorbitant 2% per annum management fee, GBTC investors are also prohibited from redeeming the GBTC shares in absence of any laws requiring so, causing rage and protests eventually leading to the Redeem GBTC Campaign.
The Redeem GBTC Campaign: Unhappy Investors Seeking A Way Out, But Can They?
The Birth of GBTC
- GBTC was founded with the aim of providing institutional and high net worth individuals (HNWI) with exposure to Bitcoin without the challenges and risks of trading and holding Bitcoin directly. The role of GBTC was simply to hold Bitcoin, issue shares representing such Bitcoin ownership and processing share redemption upon request. Since its inception until 2014, GBTC issued 1,474,600 shares and processed the redemption of 92,200 shares.
SEC Suspended GBTC Share Redemption
- The SEC issued a notice stating that the GBTC redemption program had violated Reg M in simultaneously issuing and redeeming shares. With that, the GBTC redemption program was suspended the very next day.
Grayscale Changes Its Direction to Target the Masses
- Grayscale filed its first application to convert itself into a Bitcoin ETF, which is contrary to its initial product proposition. There were conversations between Grayscale and the SEC on this matter, however the application was eventually withdrawn on the basis that the regulatory environment at the material time was insufficient for such a product to be successfully brought to market.
GBTC Share Redemption No Longer Suspended by the SEC, but...
- GBTC entered into a settlement with the SEC, which supposedly should have resolved the prior Reg M violations. However, GBTC continued to self-restrict the operation of its redemption program, purportedly in compliance with Reg M. In doing so, Grayscale had failed to acknowledge that Reg M only requires that issuance and redemption cannot be done simultaneously, instead of a complete ban in share redemption.
Grayscale Amended the Trust Agreement for Absolute Control
- Such amendment gave management powers to suspend or refuse redemption orders while shareholders were stripped the rights to remove the management, even in case of abuse of powers.
And then Grayscale Pretends to Tie its own hands in Prohibiting Share Redemption
- Grayscale again amended the Trust Agreement, this time self-imposing a prohibition in share redemption. In trying to ustify such an amendment, Grayscale claimed that a waiver from SEC was necessary for the share redemptions to be permitted, when in reality there is no such legal requirement at all.
Malicious Share Issuance to New Investors
- While no share redemption was processed, Grayscale had at the same time issued exponential quantities of new shares, thereby flooding the market with excessive supply. At the same time, contrary to its original purpose, Grayscale was marketing itself to individual investors through campaigns such as #DropGold. With that, the value of assets under management flipped and triggered over 2,000% increase in the annual fees of GBTC.
GBTC Shares Started Trading at a Steep Discount
- Due to the overissuance and oversupply of GBTC shares, coinciding with the beginning of crypto winter, GBTC shares started to trade at a discount. The historical biggest discount happened in December 2022, at a discount of 48.89%.
Again, Grayscale Attempts to Convert GBTC into an ETF
- Grayscale filed a blog post with the SEC claiming to have been “100% committed to converting GBTC into an ETF” and that this has always been its intention, despite contrary statements in the past. Such conversion also served as a justification to the refusal of share redemptions.
SEC Rejected the Application to Convert GBTC into ETF
- Along with applications related to Bitcoin ETFs by other issuers, the SEC rejected these applications on the grounds that these proposals failed to meet anti-fraud and investor protection standards.
GBTC Investor Fight Back with the GBTC Campaign
- David Bailey, the CEO of Bitcoin Magazine, initiated this campaign so that GBTC shareholders receive fair treatment from the management. The campaign saught for a credible path to GBTC share redemptions while minimizing the impact on the spot Bitcoin market, a fee reduction, as well as a change in management with a competitive bidding process for new trust sponsors.
GBTC or Spot Bitcoin: Which is Better?
Given the tension between the Grayscale management and the shareholders, should an investor now still seek exposure to Bitcoin via GBTC, or take the more straightforward method of simply investing via the Bitcoin spot market?
Buying GBTC
Own shares of GBTC only instead of actual Bitcoin- High management fees at 2%, reducing overall ROI
- Share redemption process is unecessarily restrictive
- Limited liquidity, making entry and exit points less accurate
- Undergoing stakeholders and management conflict
Buying Spot Bitcoin
Ownership of actual Bitcoin instead of a derivative product with no intrinsic value- Valuation is much more straightforward to understand
- Significantly bigger market cap than GBTC shares, making it easy to trade in the market
- Can be traded via trusted centralized exchanges (CEX) with proof of reserves
- Zero trading fee
Bitcoin (BTC) Price
The current price of Bitcoin (BTC) is $101811.9, which is also -0.61% in the last 24 hours, and -5.15% in the past 7 days. For more information, see Bitcoin price now.
Trade BTC/USDTFAQ about GBTC and Bitcoin
Is GBTC a good investment, especially when it is trading at a discount to NAV?
GBTC shares do allow investors to have exposure to Bitcoin while bypassing certain challenges such as storage, security and insurance, as well as legal compliance in the case of US investors. However, steep discount to NAV also meant that GBTC shareholders are likely to be in the state of panic or fear. With recent attacks towards the Grayscale management, such added variable to the already volatile Bitcoin price movement may increase the risk for new investors to Bitcoin and cryptocurrencies.
How to choose between GBTC and spot Bitcoin?
As all GBTC does is holding Bitcoin via trust on behalf of the investors, GBTC can actually be considered a derivative of Bitcoin. In saying so, the value of GBTC shares is derived from the NAV of the Bitcoins held, and comes without any intrinsic value of its own. GBTC shares are therefore vulnerable to market sentiment and risks, and is very much prone to supply and demand factors on top of spot Bitcoin price. This can pose more difficulties to investors as far as share valuation is concerned.
How to buy Bitcoin if it is decided that spot Bitcoin would be more appropriate?
You can buy Bitcoin by trading on the spot market via Gate.io, all you have to do is follow the steps on how to buy BTC once you have funded your account.
What is the price prediction of Bitcoin (BTC) in the future?
Investors tend to rely on fundamental analysis and technical analysis in trying to predict the future price of Bitcoin. On this point, the BTC price prediction may be helpful in your decision making process before making any investment decisions.
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