One of the best-performing investments is up more roughly 350 percent year-to-date, but at least one analyst says the average investor should stay far away from this product.
The Bitcoin Investment Trust (GBTC) from Grayscale Investments tracks bitcoin prices, and depending on the source it is up either 380 percent (according to Bloomberg) or 360 percent (according to Grayscale).
The trust values its bitcoins based on the TradeBlock XBX Index, and the index calculates its value by using bitcoin exchanges, over-the-counter markets or derivative platforms. It has a hefty 2 percent expense ratio.
The huge gain in net asset value comes from the sharp rise in the price of bitcoin this year. According to Bloomberg, bitcoin hit a record of more than $3,300, up 50 percent in one month, and Bloomberg noted bitcoin’s 30-day volatility index is at its highest since early 2015.
But before investors start chasing this investment, they should know that GBTC is traded over-the-counter on the OTCQX and is not registered with the Securities and Exchange Commission. Instead, the trust’s shares are publicly quoted under OTC Market Group’s Alternative Reporting Standard.
According to OTC Market Group’s website, the OTCQX is the top marketplace it operates and its Alternative Reporting Standard is for companies qualified by high financial standards, the quality of their disclosure and a third-party sponsor introduction.
This rating means investors can buy and sell shares through most traditional brokerage accounts, OTC Market Group says. Grayscale says on its website that the trust is also eligible for certain tax-advantaged accounts. Grayscale did not return requests for comment.
On its website, Grayscale says GBTC was the first security “solely invested in and deriving value from the price of bitcoin.” So far the SEC has not allowed any bitcoin exchange-traded fund or exchange-traded note. Grayscale is seeking SEC permission to make the trust a full-fledged ETF.
The reason why GBTC isn't an ETF is that it doesn't trade on a national exchange such as the NYSE, Nasdaq or Bats, and it doesn't have the constant creation-and-redemption process that ETFs employ to keep the shares in line with the underlying assets they hold.
It is believed the only ETF on the market with bitcoin exposure is the Web x.0 ETF (ARKW) from Ark Investment Management, which includes an 8 percent stake in the “blockchain & P2P” category. Blockchain is a distributed database, or public ledger, where cryptocurrencies such as bitcoin are recorded and confirmed anonymously. P2P refers to peer-to-peer computer networks.