At last count the Securities and Exchange Commission has rejected applications for 11 bitcoin exchange-traded funds. And earlier this month Bitwise Asset Management threw its hat in the ring when it filed an initial registration statement with the SEC for a physically held bitcoin ETF.
Despite the dramatic drop in bitcoin’s price since mid-December 2017, there remains substantial interest in the digital currency. And investors itching to invest in a bitcoin fund already have an option at their disposal with the Grayscale Bitcoin Trust, which trades under the ticker symbol GBTC and has been open to investors as a publicly traded vehicle since 2015.
GBTC is sponsored by Grayscale Investments LLC, a New York City-based digital currency asset management firm.
According to Morningstar, GBTC tops the list of the best-performing exchange-traded funds on a three-year basis with annualized returns of nearly 105 percent.
Sounds impressive, but GBTC isn’t an ETF. And the product’s average three-year return includes both the frenzied run-up in the price of bitcoin that peaked in late 2017, and the subsequent massive price decline. GBTC’s share price ended Thursday at $3.98, down nearly 87 percent from its all-time high more than 13 months ago.
People can invest in the Grayscale Bitcoin Trust one of two ways. But first, a little background on the trust: It launched in 2013 and traded as a private placement for roughly the first one-and-a-half years before it got a public quotation with the OTC market. The publicly traded option is listed on the OTCQX under the GBTC ticker.
The trust is a 506(c) private placement available to accredited investors. People can subscribe to the private placement in dollars in exchange for shares at a daily net asset value. Under Rule 144, investors can resell those shares on the OTCQX marketplace after a one-year lockup period. Those liquid shares can be purchased by non-accredited investors under the GBTC ticker symbol on a daily basis.
“One of the things we convey to regulators and policy makers is we have a pretty long track record and we think it’s battle tested during periods of highs and lows,” says Mark Murphy, vice president and head of public affairs at Digital Currency Group, the parent company of Grayscale Investments.
He adds that investors can buy the bitcoin trust cheaper with the private-placement route because they’re buying it at the daily NAV, while the publicly quoted GBTC trades at a premium that’s driven by client demand and market forces.
“On average, the premium has been about 40 percent,” Murphy says. “It’s probably now closer to 15 to 20 percent, but it has been high historically. (It was 18 percent as of Thursday.)