- What is the Bitcoin Investment Trust (GBTC)?
This trust acts as a sort of bitcoin fund, offering an opportunity to bet on bitcoin by buying its shares. The trust owns bitcoins on behalf of its investors and entrusts them to cryptocurrency storage service Xapo to keep them safe. Each share currently represents about 0.092 bitcoin ownership, an amount that will gradually decrease over time as management fees are charged to the fund.
- How much does it cost to own Bitcoin Investment Trust?
Funds are never free to own. The fund’s sponsor, Grayscale Investment Trust, receives an annual management fee of 2% of the fund’s assets. Gold ETFs are a relatively high management fee to pay, as they charge as little as 0.25% a year to invest in physical gold stored in underground vaults. Fun, it costs more to keep bitcoin safe than to keep gold safe. Who would have guessed?
I think the fees will come from competitors come to market, but there is little reason to cut the fees until they are grey. We can also argue that the cost is a rounding error compared to large daily fluctuations in the price of bitcoin. 1,557. Anyone with a 2% return on the trust in 2017 is probably not too worried about the 2% management fee they paid that year.
To be sure, owning a bitcoin Investment Trust is much easier than buying a digital currency in an online cryptocurrency exchange. Convenience always comes at a higher price.
- Owning Bitcoin Investment Trust is the same as owning a Bitcoin?
Yes and no. In theory, Bitcoin Investment Trust should generally gain in value when bitcoin rises, and fall when the price of bitcoin falls. In practice, in roughly one in three trading days, bitcoin and the Bitcoin Investment Partnership actually moved in opposite directions.
The trust’s popularity is to blame for its unpredictable performance. It is safe to say that Bitcoin Investment Trust will outperform bitcoin when investors pile up and under perform bitcoin when investors flee its shares. It tends to exceed both up and down, with the digital currency rising more than bitcoin when it rises in value and falling faster than bitcoin when it falls in value.
Since going public, the Bitcoin Investment Trust has closed at prices as high as 2.32 times the value of the underlying bitcoin. At its lowest level, the Trust closed 0.1% lower than what its bitcoins were worth at the time. On any given day, the trust is likely to close at a value that exceeds the value of its digital currency holdings, as it has closed on the median day at a price 42% higher than the value of its bitcoins.
If you can buy shares at a small premium, it might be worth paying for the convenience of safely owning bitcoin through a tool you can buy or sell through an ordinary brokerage account. But it’s a good idea to cross-check its price with its net asset value, or the value of its bitcoins, per share. It would be unfortunate to pay a price high enough to cause you to lose money in the Bitcoin Investment Trust at a time when bitcoin is gaining in value.
