What is the Grayscale Bitcoin Trust, the largest bitcoin whale since 2013

This tool allows institutional and corporate investors to gain exposure to Bitcoin as if they were holding it themselves, but without the hassle of directly acquiring and managing it. Grayscale Investments was originally called Bitcoin Investment Trust and was founded on September 25, 2013, Grayscale Bitcoin Trust is its main product. The company also has trusts to manage Ethereum, Litecoin and altcoins (Digital Large-cap Fund). Grayscale Investments is the largest digital asset management firm in the world.

How to Buy Bitcoin ETFs

A Bitcoin ETF (Exchange Traded Fund - publicly traded fund), i.e. a fund backed by real Bitcoin, does not yet exist (except for the German BTCE and the Canadian ETF) because the SEC keeps refusing to approve it. But there are semi-open alternatives, the first and largest of which is Grayscale Bitcoin Trust.

Why do we need a Bitcoin ETF?

Index funds already exist, so why do we need ETFs? The ETF will allow Bitcoin to be traded like a stock, as an index fund only allows one purchase at the end of the day. ETFs allow intraday trading and do not set prices extremely high (index funds around $2,500). ETFs are also more tax-advantaged (you only pay capital gains tax once you sell it to another investor).

Grayscale Bitcoin Trust

Grayscale Bitcoin Trust is the flagship product of Grayscale Investments, which became the first digital currency investment vehicle with SEC reporting company status.

GBTC shares are publicly traded shares of Grayscale Trust on the OTCQX markets, which is the highest level of the so-called OTC (over-the-counter) markets whose listed companies are not on traditional exchanges and exchanges. They are regulated by the SEC (Securities and Exchange Commission). The OTCQ operates as a dealer network without the order matching service of a traditional exchange.

How Grayscale Bitcoin Trust Works

Securities are valuable papers. They are interchangeable and tradable and serve to increase capital. They either have property rights (equities), or are like a loan (debt) or both. A trust is a type of relationship where one party entrusts another party with property to manage for the benefit of a third party. Grayscale will invite wealthy private investors to fill the fund and use their funds to buy large amounts of Bitcoin in the fund. Grayscale will then pay the investors and itself from the so-called bonus, which I will explain further.

The minimum investment is $50,000 and the annual fee is two percent. Trust offers security and management of Bitcoins. Moreover, it is tax-advantaged because it is an indirect investment in Bitcoin. This way, investors can also trade BTC against stocks without using crypto derivatives. But GBTC shares have a high premium, which means that the company's market capitalization is greater than the funds held. However, the premium is purely a market issue. Some analyzes examine this number after assessing market sentiment.

How many bitcoins does Grayscale hold?

Grayscale buys Bitcoin whenever there is a demand. They hold over half a million of them so far (over 3 % total stock). More precisely (according to CoinDesk) 649,130 Bitcoins as of February 2021.

The holder of GBTC shares is required to keep them for at least 6 months and can never exchange them for Bitcoin.

GBTC holders include BlockFi (crypto lending platform), Three Arrows Capital (hedge fund investing in DeFi), and Horizon Kinetics (portfolio management). In addition to cash, GBTC clients can obtain shares through borrowing on BlockFi, for example.

DCG behind Grayscale is thus a hedge fund comparable to Pantera Capital or Galaxy Digital. Grayscale had more than $37 billion in assets under management in February 2021 (more than six times the previous year).

Virtually all of Grayscale Bitcoin Trust's bitcoins are held by Coinbase custody, which takes care of security, making purchases, etc.

Barry Silbert

Grayscale Investments was founded by Barry Silbert. It all started in 2004, when he created SecondMarket (also NASDAQ Private Market) to provide liquidity to restricted securities of public companies (restricted = eg those that cannot be sold by the founder of the company for 1 year and cannot escape from the start-up company). In 2008, SecondMarket expanded into more exotic asset classes and then poured $2 million into Grayscale.

Grayscale Bitcoin Trust is managed by Grayscale, which is owned by DCG (Digital Currency Group). Silbert first heard about Bitcoin in 2012. A year later, he stepped down from SecondMarket to devote himself to it, and in 2015 Second Market was sold to NASDAQ (hence the name NASDAQ Private Market).

Barry Silbert is the CEO of DCG, which has invested in Brave (a browser that rewards users), Coinbase, Ledger, Rippa, and Zcash. But DCG also has a subsidiary CoinDesk and Foundry, a consultant and provider of finance for miners. Silbert is not just anyone, because he already passed the brokerage exam at 17 Series 7 (as the youngest person ever). Magazine Fortune included him in the 2011 40 under 40 list.

Barry Silbert is thus one of the most powerful figures in the cryptocurrency world, as DCG controls the entire spectrum of cryptocurrency areas (news, mining, institutional investors and retail investors through the Luno exchange).

Who Can Buy Grayscale Bitcoin Trust Shares?

The Grayscale Bitcoin Trust (GBTC) is exclusively for accredited investors, which in America means proving an annual income of $200,000 or a spousal income of $300,000 for the past two years with the expectation of similar numbers in the future. In 2020, the SEC expanded the term to include people who have professional knowledge, experience, or certifications, in addition to the income and wealth tests.

Competition

Osprey Funds with shares under the symbol OBTC offers the same service as Grayscale, but with a fee of only 0.49 + 0.3 %. However, the client must hold the OBTC for at least one year and may be unaccredited. Osprey Funds has just $80 million under management.

Another competitor is CrossTower in Bermuda, 4 times smaller than OspreyFunds. The latter has an administration fee of 0.6 % and no mandatory holding period. However, the minimum investment is $100,000 (and only for accredited investors).

In February 2021, BlockFi launched a Bitcoin Trust physically managed by Fidelity Digital Assets. The fee is 1.75 %. Last year, BlockFi had a 5% stake in Grayscale Bitcoin Trust.

Bitwise Bitcoin Fund with a fee of 1.5 % is also seeking to be verified by the regulator. She has already succeeded with her Crypto Index fund.

What will happen when the SEC authorizes Bitcoin ETFs

Grayscale will have to cut its premium. At the same time, the director of Grayscale himself said that the Bitcoin ETF is only a matter of time. Previous reasons for rejection by the SEC were lack of evidence against market manipulation and confirmation of the size of the Bitcoin market.

ETFs already exist in other states, however, everyone is looking at the United States, which is why it is generally said in the crypto community that the ETF has not yet been approved.

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All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.