Is Grayscale Bitcoin trust an ETF?

The world’s largest cryptocurrency, Bitcoin, has been one of the world’s most talked-about assets in 2021. Bitcoin prices, displaying a volatility worse than that of penny stocks, have had wild swings in last five months of this year.

Showing a blatant lack of stability, Bitcoin surged by the simplest of tweets by Tesla Inc (NASDAQ:TSLA) CEO Elon Musk backing the asset. It peaked to the price of about US$65,000 in mid-April. But since then, the cryptocurrency has lost 50% of its peak value and is trading around US$32,000 right now. The reason? Slightest and the simplest triggers. One such reason is Mr Musk, who seems to have suddenly discovered that Bitcoins are not environment-friendly, withdrawing his backing within three months.

With massive hype and hoopla prevailing around cryptocurrencies, everyone is trying to jump on the bandwagon of digital assets – though it might still be all Greek to a majority of them. But, with its volatile nature and lack of underlying assets, investors have to be cautious about how they trade in it.

Self-trading has also picked up over the years, as increased internet penetration has made access to data very easy in the past decade.

The talk about Grayscale Bitcoin Trust (GBTC) comes up when someone talks about Bitcoin trading. So, we at Kalkine Media, give you the lowdown on Grayscale Bitcoin Trust.

What is Grayscale Bitcoin Trust?

It is a digital currency investment product. Individual investors can use it to buy and sell in their own brokerage accounts. The Trust made a record of sorts in January 2020, when it became the first digital currency investment vehicle to attain the status of a reporting company by the US Securities Exchange Commission (SEC). The company, at that time, registered itself with the regulator. This move was aimed to allow accredited investors who bought shares in the Trust’s private placement to have an advanced liquidity opportunity. This was because the statutory holding period of private placement shares would be truncated to half, from 12 months to just 6 months, according to the SEC rules.

Prior to that, the Grayscale Investment Trust started as the Bitcoin Investment Trust in September 2013 as a private placement to accredited investors and, later on, received an approval from the Financial Industry Regulatory Authority (FINRA) – an American self-regulatory organisation – for eligible shares to trade publicly. In the simplest terms, this would mean that investors have access to buy and sell public shares of the Trust under the symbol GBTC. Requiring minimum investment of $50,000 and charging an annual fee of 2.0%, as on date, GBTC has US$21.9 billion in assets under management (AUM) and 692.37 million shares outstanding.

What is an ETF?

Coinciding with the burgeoning interest in digital currencies, investors’ inclination towards the Exchange Traded Funds (ETFs) has also been on the rise. Since the very onset of the pandemic, investors swung into action to fight for safety. The stocks nosedived, asset classes crashed, physical gold also saw demand being wiped off. However, bond purchases and gold as investment class gained traction. Now, this is typically how investors behave in any crisis. The only difference this time was that the demand for gold was driven substantially by the Gold ETFs. Passive in nature, ETFs are a type of investment fund and exchange-traded product – which are traded on stock exchanges. While many confuse ETF with a mutual fund, yet there is a huge difference – ETFs are traded throughout the day in the markets while mutual funds, on the other hand, are traded based on their price at the day's end.

So, is Grayscale Bitcoin Trust an ETF?

While they might sound similar, it is pertinent to note that they are not. Take this example: investors who subscribe to new shares issued by the GBTC will have to wait for six months before they can trade that share in the market, while investors in ETFs, on the other hand, do not face that kind of restriction. Even as the Trust is not an ETF per se, the Trust says it's modelled on popular commodity investment products like the SPDR Gold Trust – which is a physically-backed ETF.


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