Grayscale’s Bitcoin Trust (GBTC) made headlines again yesterday with its record one-day addition of 16,244 bitcoin, adding to its stack of over 630,000 bitcoin and an assets under management (AUM) totaling about $23 billion. Evidently, business is good. So, who are Grayscale’s investors? Is GBTC’s premium an incentive, or a disincentive? And where will this fund move in the future?
What Is GBTC?
Grayscale owns bitcoin in its GBTC trust and investors buy shares that represent a number of those bitcoin. There’s a 2 percent per year management fee, in addition to a “premium.” The premium is the difference between the underlying bitcoin value (native asset value or “NAV”) versus the market price of the holdings (what the shares cost).
There are two layers of investors. There are the base-layer investors — accredited investors selected to buy into the private placement of the fund at the “NAV” price, aka the price of the underlying bitcoin value. Base-layer investors can send USD or bitcoin and receive a number of shares equivalent to the bitcoin value (it is currently 0.00094919 BTC/share).
One other key catch is that it’s one way. Once you put bitcoin into the trust, it can’t be taken out. Investors can sell their shares, but the bitcoin will remain in the trust and off the market.
“Grayscale Bitcoin Trust does not currently operate a redemption program and may halt creations from time to time. There can be no assurance that the value of the shares will approximate the value of the Bitcoin held by the Trust and the shares may trade at a substantial premium over or discount to the value of the Trust’s Bitcoin. The Trust may, but will not be required to, seek regulatory approval to operate a redemption program.”
Base-layer investors have a six-month lockup before they can sell their shares in the open market to the second layer of investors. These…