What Is Grayscale GBTC?

The Grayscale Bitcoin Trust (GBTC) is a financial product that lets individual and institutional investors invest in Bitcoin. It first launched in 2013, and investors can buy and sell GBTC through the stock accounts they already use.

In 2024, the U.S. Securities and Exchange Commission (SEC) gave final approval to Grayscale's ETF application, and as a result the Grayscale GBTC ETF officially launched.

At one point Grayscale held more than 600,000 BTC, making it the second-largest Bitcoin holder in the world after Bitcoin's anonymous creator, Satoshi Nakamoto. ~~These days it's busy selling them off..~~

Grayscale GBTC Explained

The Grayscale Bitcoin Trust is a security whose underlying asset is Bitcoin. It first launched in 2013 and began trading publicly in 2015. Through GBTC, investors can buy a security asset with exposure to the BTC price without having to buy and store Bitcoin themselves.

The Grayscale Bitcoin Trust was founded by Digital Currency Group (DCG). DCG is a global investment company focused on digital assets and blockchain technology.

Grayscale GBTC had been trying to convert into an ETF for retail investors since 2017. However, the SEC rejected its ETF applications, citing the potential for market manipulation and risks to investors.

Then, in January 2024, the Grayscale spot Bitcoin ETF was finally approved, marking the historic moment it was listed as an official ETF on the New York Stock Exchange.

How Grayscale GBTC Works

Grayscale GBTC operates as a trust. This means that when investors put in money, the trust buys actual Bitcoin worth at least that amount. Grayscale then issues additional GBTC shares corresponding to that amount.

However, there was a risk that GBTC shares might not accurately track the actual value of Bitcoin. In fact, before the ETF launch, GBTC sometimes traded at a discount of about 30–50%. This means GBTC was being bought and sold at a lower price than the value of the Bitcoin at the time.

Fortunately, after the SEC's ETF approval, that discount narrowed to -0.32%, and GBTC now tracks its net asset value (NAV) almost exactly. Below is a chart showing GBTC's premium and discount.

Why Is Grayscale Selling Bitcoin?

You may have heard the news that Grayscale has recently been sending large amounts of Bitcoin to exchanges and selling it. Because of this, the Bitcoin price, which had been on an uptrend, has stalled and is going through a correction. So why is Grayscale selling Bitcoin?

It's because investors who bought into GBTC in the past are requesting redemptions. Those who bought GBTC back when it was selling at roughly a 40% discount to its net asset value are now moving to cash out, since the discount has converged to 0% since the ETF launch and the Bitcoin price has also risen sharply.

In short, Grayscale is sending the Bitcoin it holds to exchanges and selling it in order to pay those funds out to investors.

Bitcoin flowing out of Grayscale to Coinbase to be sold

Pros and Cons of GBTC

So what are the pros and cons of GBTC? First, the biggest advantage of the Grayscale Bitcoin Trust (GBTC) is that you don't need to open a separate account just to buy Bitcoin.

Investors can invest in Bitcoin indirectly using a variety of accounts, such as their existing stock accounts, individual retirement accounts (IRAs), and 401(k)s. Also, since the GBTC fund manager keeps the Bitcoin safely in custody, you don't have to worry about security. Finally, because it has been approved by the SEC, you can also expect transparency and reliability.

The downside of GBTC is that, as in the past, large premiums or discounts can occur. This means investors may end up buying and selling the asset for more or less than the actual value of Bitcoin. In addition, GBTC's fee is about 2.5% per year, which is relatively high compared to other Bitcoin ETFs. As a result, this may be a disadvantage for long-term investing.

GBTC Pros	GBTC Cons
Can invest through brokerage accounts, IRAs and 401(k)s	Possible premium/discount to net asset value
Secure Bitcoin custody	Relatively high management fees
Trust and transparency through SEC oversight	Can be highly volatile

Wrapping Up

The Grayscale Bitcoin Trust (GBTC) can be an option for individual and institutional investors considering investing in Bitcoin. Its biggest advantage is that investors can invest in Bitcoin indirectly using their existing brokerage accounts. However, it's good to keep in mind that GBTC's fees are higher than those of other fund managers, and that it can be highly volatile due to Bitcoin price swings and regulatory issues.