By Larry Wright
You are probably aware of the surge in popularity of online trading in recent years unless you have been living under a rock for the last few years and have been entirely disconnected from the outside world. Stocks, bonds, NFTs, options, futures, and cryptocurrencies, in particular, have taken over the world and have attracted a vast number of investors from all continents.
The practice of trading online is not only convenient but also very productive. After gaining an understanding of the foundations and benefits of trading that is accessible through the internet, traders are able to participate in this activity without any problem utilizing the customized trading account that is available via the internet and that is offered by your firm.
These brokerages provide you access to the financial market in addition to providing you with assets that you may purchase and sell according to your requirements and preferences.
I am sure you have heard about Bitcoin- the world’s inaugural and most popular cryptocurrency. Grayscale Bitcoin Trust (GBTC) is the most significant Bitcoin investment fund in the industry. It represents the first-ever publicly listed Trust in history to have an intrinsic worth that is similar to that of digital money. Don’t you know much about GBTC and what makes it so special? No issues; we will learn about them in a bit.
For those interested in investing in virtual property, Grayscale Bitcoin Trust is the name given to a security that can be bought and sold using a standard trading account like the one brokerages provide in order to conduct online trading endeavors.
On 21 January 2020, it was designated with the title of the first-ever Trust that was authorized by the SEC. This was accomplished by enrolling the firm’s shareholdings with the Commission and establishing the institution as an SEC reporting company.
As a result of this change, credentialed speculators who acquired shareholdings in the Trust’s private positioning were able to take advantage of an extremely beneficial financing incentive.
Let’s take a closer at the Grayscale Bitcoin Trust, the advantages it has to offer, and how it resonates with the idealogy behind bitcoin.
A Brief Explanation of Grayscale Bitcoin Trust
The valuation of trusts and organizations that trade on public stock markets is determined by the core securities that they own. The majority of these investments are equities in corporations that are traded openly. Demand for the asset is a factor that determines how much the fundamental net asset value (NAV) is worth, which in turn affects the pricing of the corporation or fund.
By acquiring shares in the fund, a shareholder has the opportunity to get a part of the asset being invested in, thereby benefiting from its development every now and then. Because it is an over-the-counter trust, GBTC is accessible for buyers and sellers to purchase and transfer in exactly the same manner as any other kind of securities offered in the United States.
For instance, GBTC may be purchased and sold via a financial intermediary, in addition to being held in tax-advantaged plans like the 401(k)s.
Purchasing GBTC shares may be done in one of two ways. If you meet the criteria to be considered an accredited shareholder and have at least $50,000 available to contribute, you have the option to buy GBTC securities outright.
However, this method of purchasing is limited, and there are considerable constraints placed on both the capacity to resell and transfer the item. Through OTC Markets such as the OTCQX, retail investors are given the opportunity to purchase GBTC shares.
The market of GBTC shares moves up and down much like any other conventional stock. OTCMarkets, as well as TradeBlock, are several websites that include economic indicators that you may browse.
Due to the fact that GBTC is a bitcoin trust, you will be able to purchase its units by simply logging into your ordinary brokerage account. You need no different trading platforms for it either- they are compatible with all trading dashboards.
You will be able to bypass the inconvenience of acquiring Bitcoin via a brokerage if you engage in this behavior since it constitutes an oblique purchase of Bitcoin and is very much like it. This indicates that you depend on Grayscale to act as a third-party provider on your behalf in order to purchase and store Bitcoin.
The real Bitcoins are kept in an organizational trust managed by Grayscale, as well as the consumer index of this Trust is traded either on the international system or in an over-the-counter marketplace.
GBTC operates in a manner that is similar to that of a cryptocurrency exchange-traded fund in that it combines the capital of participants for the purpose of making investments in Bitcoin and charges them a processing charge for doing so.
For expenditure firms and private investors who want to enroll in the Trust in the position of a private placement, the GBTC foundation necessitates a minimal commitment of $50,000 alongside an annualized membership fee of 2.0 percent, which accumulates every day.
In addition, the Trust imposes a service fee for each day that the deposit is held. All these contributions are employed to make GBTC even more efficient, safe, and profitable for all its investors.
Because it is historically difficult to store cryptocurrencies in a secure manner, GBTC helps alleviate the apprehensions of clients by assuring them that the resources of the Grayscale Bitcoin Trust are being protected by a comprehensive privacy system that incorporates the use of industry-leading cybersecurity requirements. It claims that its Trust is built under layers of impenetrable firewalls and encryptions in order to manifest safety and security.
What Are The Advantages of Using GBTC?
We’re going to take a look at a few of the benefits that come along with using GBTC right now.
Using GBTC, one may acquire and keep Bitcoin in a streamlined manner, with the assurance that their funds are secure. In order to truly possess Bitcoin, you are required to be familiar with markets where you may purchase and dispose of the virtual currency.
It is necessary to maintain crypto wallets, a cryptography identity, and a private key in order to keep Bitcoin in secure manner. Bitcoins are at risk if their private key is lost, stolen, or compromised in any way.
Because with GBTC, you won’t have to stress about the challenges associated with purchasing, storing, and protecting Bitcoin by yourself, it is considered a lot more convenient and stress-free.
Moreover, the fact that GTBC assets function similarly to stocks and bonds means that investors can benefit from simplified tax filing too. In contrast to the situation in which you have Bitcoin in your own wallet, here you won’t be required to be concerned regarding how to complete the tax form.
When purchasing GBTC assets using tax-advantaged institutions, including IRA, individuals are eligible for tax deductions and other financial benefits.
Customers will also have a better time filing their taxes if they purchase publicly listed equities of a company that has been authorized by the SEC.
Grayscale has expanded its investment services to include Bitcoin and a number of other major cryptocurrencies in order to capitalize on the growth of crypto trusts. It is currently offering a variety of cryptocurrency trusts, some of which include the Grayscale Litecoin Trust, Grayscale Bitcoin Cash Trust, the Grayscale Zcash Trust (ZEC), and even more.
There has been an increase in the number of investment contracts, as well as the number of direct asset managers associated with GTBC; this may indicate that these Bitcoin-derivative markets are maturing.
In addition, Grayscale provides a higher level of safety in cold storage, while virtual currencies and wallets are susceptible to attack by cybercriminals and con artists. A managerial fee is imposed by GTBC for the use of their cold storage facility, which protects their Bitcoin from being hacked.
When it comes to making decisions, safety should always come first, and I don’t think anybody would argue that point. It is always preferable to invest a few more bucks rather than risk losing what you now own.
To further assure shareholders that their BTC has been safeguarded, Grayscale Bitcoin Trust submits validated audit statements, analyses, and reports to the SEC regularly. This is a benefit in comparison to cryptocurrency exchanges, which possess the ability to con individuals out of their money. The fraudulent activity that occurred on the QuadrigaCX platform in 2019 is an indication of one of these types of scams. However, with GTBC, you are secure, and so are your assets.
What are the Disadvantages of Using GBTC?
GBTC has a number of significant shortcomings, too. Let’s pay some heed to them:
To begin, there is the initial investment as well as the recurring expenditures. GBTC levies an annual processing fee of 2% of assets, as I mentioned earlier.
This just seems nonsensical for the purpose of just purchasing and retaining an underlying token, despite the fact that it is challenging to cope with it from a practical standpoint. Imagine so much of yours at stake, along with you paying extra fees for it literally every day.
In the long run, I really anticipate that shareholders will put pressure on GBTC to lower this managerial fee as technological advancements continue and there is additional competitiveness in the sector.
Additionally, GBTC is known to move at a premium. The market valuation of GBTC represents a premium of 7% above its NAV. As a result, the price that you are spending for bitcoin is around 7% higher than its current valuation. It is difficult for me to justify paying such a premium as an entrepreneur who focuses on finding good deals and saving up money.
On the contrary, the meta argument for bitcoin has become so compelling that this won’t make any much difference in the foreseeable future, particularly in the event of deflation or some other issue that affects the whole ecosystem.
Furthermore, the premium appears to spread as a result of a jump in the value of bitcoin, allowing for easier trading possibilities together around the position.
In particular, GBTC is subject to a variety of operational hazards, which, according to some bitcoin enthusiasts, renders the whole concept of holding an autonomous asset irrelevant. The risks associated with counterparties and safekeeping are the key issues. To keep bitcoin secure and to control access to the electronic wallet and lockers, GBTC employs the services of Coinbase Custody Trust Company as their custodial partner.
GBTC would suffer a loss in the event that the custodian was hacked or went bankrupt. On top of this, there is constantly the possibility that GBTC corporation would provide an inaccurate picture of its monetary circumstances. Audits are performed on all of the telecommunications companies as well as GBTC itself; nonetheless, this does not always ensure the customers’ safety.
You receive the very same insurance against inflation if you possess GBTC as you would if you owned bitcoin outright, but one does not benefit from the entire minimization of counterparty risk.
On the contrary, GBTC holdings are simple to manage inside an IRA. Despite the fact that alternative technologies are being developed to provide more easy accessibility to bitcoin in IRAs, the charges continue to be somewhat expensive.
None of the above options offers the same level of unadulterated vulnerability as cold storage wallets do. It is conceivable to establish what is known as a “Checkbook IRA,” which would hold an investment in an LLC that, in effect, would possess bitcoin, but doing so would also bring forth additional issues.
To the best of my knowledge, there is currently no method to hold bitcoin in an IRA that does not include some type of counterparty risk or operating risk. Taking aspect into consideration, purchasing additional GBTC would be a wise move.
Bitcoin vs. GBTC: What is the Difference?
Bitcoin is the first-ever cryptocurrency to be established, and it is now the biggest and most well-known of all digital currencies. It’s based on a distributed record of each operation, which is kept safe and secure by a worldwide network of thousands of servers using a mechanism called “blockchain.”
The Bitcoin network was initially conceived of as a decentralized payment system, with the intention of functioning across national boundaries and enormous geographies with cheap transaction fees and lightning-fast execution.
When compared to conventional money and credit methods, which incur considerable expenses and can take hours or even days to complete, these benefits are rated as being much more advantageous for worldwide transactions. In addition to that, the aim is to make it possible to store data in a reliable manner over the foreseeable future.
However, due to tight constraints, the total supply of Bitcoins will never increase above 21 million. It will necessitate a rewriting of Bitcoin’s programming to surpass that limitation, and the fact that perhaps the Bitcoin ecosystem is decentralized renders it exceedingly improbable that this notion would ever come to fruition.
Keeping this limitation aside, Bitcoin is a very safe method of conducting financial transactions that are administered by a global audience. However, your Grayscale Bitcoin Trust is indeed not a typical investment vehicle like Bitcoin though they both resonate a lot.
This particular asset class is administered in a manner similar to that of a stock-based trust fund, and it offers shares of stock to participants on the over-the-counter marketplace. Only Bitcoin is held inside the Trust’s ownership; it does not have any other assets, which greatly lowers its diversity index.
However, in order to summarize their differences, it can be said that Grayscale is supported by the cryptocurrency Bitcoin, which not only ensures that the merchandise is risk-free but also contributes to an improvement in the value of Bitcoin because GBTC purchases more of the industry’s supply.
Additionally, Grayscale makes it possible for investors who are not knowledgeable about tech to participate in the cryptocurrency market. It doesn’t matter how straightforward Bitcoin might appear to be to members of the cryptocurrency industry; for an individual who considers login onto Facebook to be a difficult task, Bitcoin is a challenge.
Nevertheless, Bitcoin has a number of advantages compared to GBTC, too, including lower transaction charges, a lower overall price as there is no notion of premium, and increased levels of privacy as it is based on decentralization over centralized financial frameworks like Grayscale.
Conclusion
As a general rule, only a very small number of very wealthy people should even think about GBTC as a possible investment possibility. However, if the GBTC is given clearance to trade as a Bitcoin notice ETF in the United States, it has the potential to become a wonderful capital vehicle. This is provided that the approval is granted.
On the other hand, before it can become a spot Bitcoin ETF, there are still challenges to conquer. Hence, despite the fact that Grayscale continues to function as a virtual currency trust, it may be more advantageous financially and provide additional peace of mind for regular people to acquire Bitcoin altogether.