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Should I Invest In GTBC?

Posted in Trading

While the bitcoin ETF generates more discussion, with some bitcoinaires hoping that it appears on exchanges, the Bitcoin Investment Trust (GBTC) already exists on the OTC markets available for many investors with IRAs or brokerages. In addition, some other ETFs hold GBTC along with other technology companies, giving investors diverse exposure to technology, including bitcoin. When the bitcoin ETF generated a lot of buzz, I wrote Is It Time To Buy GBTC because traders overlooked the obvious and since that time GBTC has doubled. Like that post, we’ll look at the advantages and disadvantages of evaluating GBTC as an ETF investment.

GBTC’s 513% vs. the S&P 500’s 12.7%.

Overview of GBTC

At the time of this writing, the Bitcoin Investment Trust (GBTC) holds 0.09306347 bitcoins per share while charging a 2% annual fee. One simple look at its history will show that its price has exceeded the price of bitcoin. Since 2015, GBTC has been under $25 and over $250. Over that same period of time, bitcoin has been under $200 and over $1850.

In the case of GBTC, I see as many advantages as I do disadvantages. If a person understands the risks and trade-offs, it might give him exposure to bitcoin without some complexity. For advanced bitcoinaires, GBTC may seem unnecessary. For traders, it might be priced right for an event, like I covered in Is It Time To Buy GBTC?

Since 2009, bitcoin has only experienced 2 bad years with a current value near its all time high.

Pros

I do see some strengths of GBTC in addition to what I mentioned in the medium article:

  1. In the United States, all gains in an IRA with GBTC are tax-free. GBTC is on an OTC exchange and many IRAs can access it. Joe’s return of $50,000 from a $10,000 investment in less than 1 year is all his.
  2. Both bitcoin and GBTC have different rising and falling patterns. These patterns do not match other securities on markets, such as currency, indexes, real estate, etc. GBTC adds some diversification to a retirement portfolio.
  3. Other ETFs have purchased shares of GBTC (generally tech oriented ETFs). This has provided them with exposure to bitcoin, strengthening their portfolios. GBTC has routed the S&P 500 in its history to date.
  4. At the current time, GBTC makes a better “short” against the S&P 500 than options. If you perfect a short right, you can make a significant amount of money with leverage, but leverage amplifies your risk and possibility of loss. For an example, if you leverage $1 billion 5 multiples, the trade can put you deep into loss territory above a 100% loss, where as an investment of $1 billion can never lose more than 100%.
  5. Since GBTC is the only bitcoin ETF at the moment, it has demand for the above reasons.

Cons

Some downsides to GBTC seem obvious, others may not be:

  1. In its history, GBTC has almost always been overpriced relative to bitcoin. The tax reason listed above is one reason why. If you add the tax bonus to bitcoin’s price, GBTC has still been overvalued multiple times.
  2. Even though GBTC holds bitcoins, based on its price and history, one could make a case that this ETF isn’t really bitcoin. When I compare the price of bitcoin to GBTC and compare an iShares fund to an index, iShares does a better job of matching the index than the GBTC fund.
  3. Bitcoin never closes; GBTC does. We won’t be able to exist our bitcoin trade at any time if we need to.
  4. We are trusting that the team understands security. Most teams use popular security, even if popular security carries risk. For an example, a cold wallet still makes some security assumptions and security constantly changes, as we cover in The Millionaire Guide To Digital Security.
  5. In general, the ETF misses the point about the nature of investing. This is just as true for a gold ETF. I have very little interest in ETFs like this outside of speculation. Owning shares of a company that mines bitcoin or owns some of exchanges is an example of a business. By contrast, owning bitcoin and hoping it rises is speculation.

Summary

From its all time low to its all time high, GBTC has provided a solid return to investors. This return hasn’t been without some challenging days. For instance, yesterday we saw a 15% drop in the price – or a 40 point swing during the day. While it may provide some financial variety, it requires a person with strong risk tolerance.

Warning

The following article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.


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