What is the Bitcoin Investment Trust?

[Paul Beck]

[Sheila Olson]

The Bitcoin Investment Trust is the only current way to trade Bitcoin on the U.S. exchanges. Grayscale Investments introduced the Bitcoin Investment Trust in September 2013. It isn’t exactly an exchange-traded fund, it’s similar to other physically backed ETFs such as the SPDR Gold Trust. It trades on the OTCQX. Physically backed ETFs operate a bit differently than other ETFs. In the case of the Gold Trust and the Bitcoin Investment Trust, the trust actually holds the underlying asset and each share represents fractional ownership of the asset. For retail investors who don’t want to get their hands dirty holding actual cryptocurrency and managing all the security issues that go along with that, the Bitcoin Investment Trust is a good way to go. However, you pay a pretty high price for outsourcing all that convenience to the trust. Management fees for the Bitcoin Investment Trust (symbol: GBTC) are a whopping 2%; for comparison purposes, the expense ratio for a gold-backed ETF is just 0.40%. But since Grayscale is the only player in the Bitcoin market right now, they can set higher fees. The company justifies its fees by the level of security it maintains storing the cryptocurrency. The Bitcoin Investment Trust currently has about $800 million under management and 215 million shares outstanding. Each share represents 0.0009 bitcoin, so if you hold 1,000 shares you’d own the equivalent of one coin. There are two main issues with the Bitcoin Investment Trust for retail investors to consider. The first is the minimum initial investment, which is currently $50,000; this isn’t a fund for dabbling in crypto. The second issue is the mandatory one-year waiting period before the shares can be sold. In other words, the fund isn’t a vehicle for traders, it’s meant for investors, and you should definitely carefully consider the lack of liquidity before you buy. Also, given the massive volatility within the fund, you’re taking a huge risk committing to holding your shares for a year. How volatile has the Bitcoin Investment Trust been? After trading around $1 a share for years, GBTC took off in 2017, reaching an astronomical $30 in December before settling into a long and equally dramatic decline. As of March 2019, it is trading at just under $5 a share and the Bitcoin holdings per share are just under $4, which is a pretty significant premium. Although to be fair, at times, the fund has traded at double the value of its Bitcoin holdings.