Grayscale Bitcoin Trust an Investment Vehicle.

Bitcoin is a decentralized, peer-to-peer cryptocurrency system designed to allow users to process transactions through digital units of exchange called Bitcoins. The key difference between Bitcoin and fiat currencies is that it is decentralized and not controlled and regulated by any central authority.

Grayscale Bitcoin Trust is passively invested in Bitcoin which enables investors to gain exposure to Bitcoin in the form of security thereby avoiding the challenges of buying, storing, and safekeeping of Bitcoin directly. It is the first publicly quoted Bitcoin investment vehicle, and the first digital currency investment vehicle to get the status of an SEC reporting company.

Investors have limited options of exposure to Bitcoin through the stock market. One way to get exposure to it is through the Grayscale Bitcoin Trust which owns and operates Bitcoin. The Grayscale Bitcoin trust monitors the Bitcoin price based on the TradeBlock XBX Index. While the trust mirrors the performance of Bitcoin the share price many times overperforms or underperforms the price of Bitcoin depending on the prevalent investor sentiment.

Many financial instruments are offered by the Grayscale investments and Greyscale Bitcoin trust shares are part of them. It is the world’s largest digital asset management firm and part of the Digital Currency Group which is the parent company of Coindesk led by the founder Barry Silbert.

The Trust offers investors an opportunity to gain exposure to Bitcoin via an open-ended trust which holds more than 649,310 Bitcoins which is equal to 3.1% of the Bitcoin circulating supply. It was launched in 2013 as the Bitcoin Investment Trust.

Eligible shares are quoted on the OTCQX, the top marketplace operated by OTC Markets, and registered pursuant to Section 12(g) of the Securities Exchange Act of 1934. Investors can buy and sell shares through most traditional brokerage accounts at prices dictated by the market.

The Grayscale Bitcoin Trust has said that it received $719.3 million in inflows in the third quarter of 2020. Institutional investors make up the bulk of its holders which is 84% of the total.

We have seen a sharp rise in the price of Bitcoin and it has crossed $ 60,000 at one point.There are a few reasons for that-

Reasons why the Bitcoin prices are rising

Adoption by Institutions

Bitcoin is now being considered as a safe haven asset against market volatility and inflation. There is a trend where companies are converting their cash into cryptocurrencies. Square an American company bought $50 million worth of Bitcoins. The confidence of corporate giants had added more weightage as a currency and many companies have followed this trend.

Paypal has announced that it would be introducing cryptocurrency buying and selling features on its platform which would include Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Paypal has 350 million users who will now be able to use crypto as a payment means.

Bitcoin halving

Bitcoin halving happens every four years and the last one was in 2020. The impact is that the number of bitcoins mined per day will fall from 1800 to 900 and daily revenues of miners will reduce by half. This decrease in the rate of bitcoin creation tightened supply and led to a bullish market. The reduction of revenue for miners will squeeze out miners who are less efficient and the computing power connected to the bitcoin network may fall significantly.

Easy accessibility to public

Cryptocurrency has established itself as a new asset class over the past decade. Many people want to convert their cash to crypto because they believe that its deflationary nature makes it a better store of value and a hedge. As it is becoming more accessible to the public more retail investors want a share of the asset class.

Investment of $1.5 billion by Tesla

The announcement of an investment of $1.5 billion by Elon Musk saying that they will invest in bitcoin and accept them as payment for their vehicles pushed the price further northwards.

Billionaire hedge fund manager Paul Tudor Jones called bitcoin the “best inflation hedge” and compared it to putting money behind tech giants like Apple and Google. Stanley Druckenmiller and Bill Miller are among the other high-profile Bitcoin bulls. Their backing has given Wall Street more confidence to invest.

The functioning of the Grayscale Bitcoin Trust

The Grayscale Bitcoin Trust invites a pool of big investors to pledge money to the fund which it uses to buy a large amount of Bitcoin. After this, it lists that fund on public stock exchanges so that people can trade shares in it. The shares roughly track the price of Bitcoin and it can be either at a premium or discount to the actual price, but historically they have always traded at a premium.

Why would an investor invest in shares of Grayscale Bitcoin Trust instead of buying Bitcoin?

There are a few reasons for this. The first is that it relieves people from the worry of thinking of how to store a Bitcoin or about filing separate taxes. The other things that people generally consider are if they have to pay someone to hold custody of the Bitcoin or what would happen if they lose the key or the Bitcoin Wallet is hacked.

The Trust allows institutional investors to complete large buy orders with minimum slippage compared to centralized crypto exchanges which lack sufficient liquidity. It reports to the US Securities and Exchange Commission which makes it all the safer.

The Grayscale Trust is exposed to Bitcoin in a tax-friendly way. There are certain tax advantages. Certain Roth IRA investor accounts that don’t give tax breaks on individual investments of Bitcoin give them for investments of publicly traded funds. Anyone can purchase the secondary market GBTC shares using platforms such as Fidelity or Schwab, however, only accredited investors can participate in the daily private placements.

Grayscale Bitcoin Trust stock is not like other common stocks.

One thing to remember when considering buying stock of Grayscale Bitcoin Trust is that it is not like a common stock. Stocks are the shares of a company while the GBTC shareholders own part of an open-ended grantor trust. In this case, GBTC is a trust that holds Bitcoin. Grantor Trusts are covered by the Securities Act of 1933 and Securities Exchange Act of 1934 and must disclose regular financial information.

Bitcoin is many times called “digital gold” enhancing the risk-adjusted returns of traditional investment portfolios. Many professional investors see it as an alternative to established safe-haven assets, such as gold. But the main difference is that gold is a physical asset and has a number of uses like 80% of gold consumed each year is made into jewelry

The main investors in Grayscale Bitcoin Trust

The biggest holders in the Grayscale Bitcoin trust are:

Ark Investment Management LLC with 7,526,604 GBTC shares worth a total of $260 million.

Horizon Kinetics Asset Management with 2,319,090 GBTC shares worth $80.4 million.

Churchill Management Corp with 309,330 GBTC shares worth $10.8 million.

Toroso Investments LLC with 222,584 GBTC shares worth $7.79 million.

Other Investment products offered by Grayscale Investment trust

The other investment products offered by Grayscale Investment trust that track other cryptocurrencies are:

· Grayscale Ethereum Trust with a minimum investment of $25000 and annual fees of 2.5%.

· Grayscale Bitcoin Cash Trust with a minimum investment of $25000 and annual fees of 2.5%.

· Grayscale Ethereum Classic Trust with a minimum investment of $25000 and annual fees of 3%.

· Grayscale Horizon Trust with a minimum investment of $25000 and annual fees of 2.5%.

· Grayscale Litecoin Trust with a minimum investment of $25000 and annual fees of 2.5%

· Grayscale Zcash Trust with a minimum investment of $25000 and annual fees of 2.5%.

In January 2021 Grayscale reported that they were managing $20.2 billion in assets. Bitcoin has become the investment of the decade with prices rising from $1 in 2011 to $57,000 as of today. The millennials have faith in the value of the currency. Bitcoin may be gaining popularity right now, but that alone doesn’t make it a smart investment. Before you invest any money, think about your tolerance for risk. Invest into Bitcoin or the Grayscale Bitcoin Trust shares after considering all the pros and cons.