A Beginner's Guide To Investing In Bitcoin With Gbtc

Bitcoin is a digital asset that is created and transmitted through the operations of the peer-to-peer Bitcoin Network, a decentralized network of computers that operates on cryptographic protocols. The Grayscale Bitcoin Trust (GBTC) is one of the first securities that is solely and passively invested in Bitcoin, allowing investors to gain exposure to Bitcoin in the form of a security while avoiding the challenges of buying, storing, and safekeeping Bitcoin directly. The trust is open only to accredited and institutional investors and is available through many brokerages and tax-advantaged accounts like individual retirement accounts (IRAs) and 401(k)s. It has a management fee of 2%. While the SEC has rejected Grayscale's attempt to turn the trust into an exchange-traded fund (ETF), investors can still gain exposure to Bitcoin through the Grayscale Bitcoin Trust.

Grayscale Bitcoin Trust (GBTC)

The Grayscale Bitcoin Trust (GBTC) is an open-ended private trust established by Alternative Currency Asset Management in 2013 and is now sponsored by Grayscale Investments LLC. It is one of the first securities solely and passively invested in Bitcoin, enabling investors to gain exposure to Bitcoin in the form of a security while avoiding the challenges of buying, storing, and safekeeping Bitcoin directly. The trust is open only to accredited and institutional investors. It began trading publicly in 2015 under the symbol GBTC and was the first publicly-traded Bitcoin fund in the US.

GBTC trades on NYSE Arca and is available through most brokerage accounts, including Fidelity, Schwab, and Robinhood. It has a management fee of 2%, which includes all the costs associated with the administration and safekeeping of the underlying Bitcoin. There are no other fees.

GBTC allows investors to gain exposure to Bitcoin through a familiar investment vehicle without the need to set up an account or wallet on a cryptocurrency exchange. It is designed to reflect the value of Bitcoin held by the Trust, determined by reference to the Index Price, less the Trust's expenses and other liabilities.

Grayscale offers multiple types of investment products, including single-asset trusts, which provide investors with exposure to a singular cryptocurrency, and diversified funds, which provide investors with exposure to a basket of cryptocurrencies. The trust had $17.7 billion worth of assets under management (AUM) as of October 17, 2023.

Valkyrie Bitcoin Miners ETF (WGMI)

WGMI is an actively managed ETF that provides investors with total return. It invests in public companies in the bitcoin mining industry, with at least 80% of its net assets going to securities of companies that derive a minimum of 50% of their revenue or profits from bitcoin mining operations or providing specialised chips, hardware, software, or other services to companies engaged in bitcoin mining. The fund does not directly or indirectly invest in bitcoin.

The Bitcoin Miners ETF is unique in that it invests in companies involved in the Bitcoin ecosystem, such as mining on the Bitcoin blockchain. As of October 17, 2023, the fund's top 10 holdings and allocations were:

• Marathon Digital Holdings Inc. (10.88%)
• Riot Platforms (10.08%)
• Cipher Mining Inc. (9.71%)
• Hive Blockchain Technologies (9.20%)
• Bit Digital, Inc. (8.94%)
• Iris Energy LTD (4.89%)
• Cleanspark, Inc. (4.74%)
• Terawulf, Inc. (4.73%)

The fund's strategy is to invest 80% of its assets in Bitcoin blockchain-related endeavours that generate at least 50% of revenues from mining, developing hardware and software, or providing services for the blockchain. According to the fund's latest semi-annual report, it allocated 90.89% of its holdings to companies developing or running software, 6.93% to semiconductor companies, and 1.63% to storage and peripheral companies.

VanEck Bitcoin Strategy ETF (XBTF)

The VanEck Bitcoin Strategy ETF (XBTF) is a fund that invests in Bitcoin futures and U.S. Treasuries. The fund debuted in November 2021 and is traded on Cboe BZX. As of October 17, 2023, the fund had $46.97 million in net assets and operating expenses of 0.66%.

The fund's active management strategy aims to provide investors with exposure to Bitcoin prices while reducing the risk and expenses associated with owning bitcoins. This is achieved by purchasing and selling Bitcoin Futures. The fund also holds U.S. Treasuries and will invest in money market funds, cash, or cash equivalents to maintain liquidity and provide collateral or margin to deal with bitcoin price fluctuations.

GBTC stock price

The Grayscale Bitcoin Trust (GBTC) is an open-ended private trust established by Alternative Currency Asset Management in 2013 and is now sponsored by Grayscale Investments LLC. It began trading publicly in 2015 under the symbol GBTC. The fund's objective is to track the underlying value of Bitcoin. GBTC trades in over-the-counter (OTC) markets and is available through many brokerages and tax-advantaged accounts like individual retirement accounts (IRAs) and 401(k)s. It has a management fee of 2%.

As of October 17, 2023, GBTC had $17.7 billion worth of assets under management (AUM). Coinbase Custody is the custodian for the fund's assets. The trust is open only to accredited and institutional investors.

The price of GBTC stock varies over time. As of March 13, 2024, the 52-week high was recorded at $61.99. On August 22, 2023, the 52-week low was recorded at $11.14. The average volume of shares traded per day is 13.18 million.

As of May 2024, the net expense ratio was 1.50%. The total net assets were $27.201 billion.

GBTC vs. Bitcoin price

The Grayscale Bitcoin Trust (GBTC) is an investment trust that allows investors to gain exposure to Bitcoin in the form of a security. It is designed to reflect the value of Bitcoin, with each share representing the trust's holdings of Bitcoin, less its expenses and liabilities. GBTC trades on the OTCQX stock market and is suitable for investors who prefer not to manage their crypto directly. It charges a 2% management fee.

On the other hand, Bitcoin (BTC) is a digital asset that is created and transmitted through a decentralised peer-to-peer network. It is traded on various cryptocurrency exchanges and held in wallets or on centralised exchanges. Its value is determined by scarcity and demand, with its price set by what people are willing to pay.

When comparing GBTC and BTC, it is important to consider their performance, risk-adjusted performance, drawdowns, and volatility. In terms of performance, GBTC achieved a 51.94% return year-to-date, while BTC-USD returned 56.63%. This indicates that BTC-USD outperformed GBTC in terms of returns.

The correlation between GBTC and BTC-USD is 0.57, which is considered moderate. This suggests that the two assets have some degree of positive relationship in their price movements. Moderate correlation can be acceptable for portfolio diversification, as it offers a balance between risk and potential returns.

In terms of risk-adjusted performance, the GBTC Sharpe Ratio is 3.17, slightly higher than the BTC-USD Sharpe Ratio of 2.75. A higher Sharpe Ratio indicates that the returns of an investment are higher in relation to its risk compared to another investment.

Both GBTC and BTC-USD have experienced significant drawdowns since their inception, with GBTC having a maximum drawdown of -89.91% and BTC-USD a drawdown of -93.07%.

GBTC has a higher volatility of 21.15% compared to BTC-USD's volatility of 13.52%, indicating that GBTC's price experiences larger fluctuations and is considered riskier.

In summary, while GBTC provides a convenient way to gain exposure to Bitcoin and is suitable for investors who prefer a more hands-off approach, BTC provides direct ownership and allows investors to fully benefit from Bitcoin's price movements. GBTC may not fully track the price of Bitcoin, leading to underperformance, and it trades at premiums or discounts compared to the actual Bitcoin price. On the other hand, BTC's price directly reflects the market and is not subject to premiums or discounts.

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