As mentioned, GBTC is not an ETF. For starters, it’s not registered with the SEC and it trades on the over-the-counter market rather than on a national exchange such as the NYSE, Nasdaq or Bats. Furthermore, it doesn’t employ the share creation and redemption mechanism that helps keep an ETF’s market price close to its underlying value.

“New shares can be created only through the private placement,” says Matt Beck, Grayscale’s director of investments and research. “We’re only creating new shares, and because it’s not an ETF at this point there’s no redemption mechanism, so there’s no reduction of shares and the number of shares increase over time.”

The bitcoin trust is based on the TradeBlock XBX Index that represents the U.S. dollar equivalent spot rate for bitcoin. According to TradeBlock, the index value is algorithmically calculated every second based on observed trading activity on leading bitcoin exchanges.

GBTC’s expense ratio is a weighty 2 percent. It’s a Delaware grantor trust and is treated as a pass-through entity for taxation purposes. According to Morningstar, it has $706.6 million in assets. But that amount includes money held in the private placement.

“It’s the net asset value of the shares times the total shares outstanding,” Beck says. “It incorporates the private placement and it’s not based on the market price of GBTC.”

10 Products

Grayscale has nine single digital-currency investments focused on bitcoin, ethereum, ZEN, litecoin, lumens, XRP and Zcash, among others. It also has an index product called the Grayscale Digital Large Cap Fund, which targets exposure to the large-cap segment of the digital asset universe.

“You can consider it [the Large Cap fund] to be like the S&P 500 for this asset class,” Beck says.

He notes the majority of investors who invest with Grayscale directly through the bitcoin private placement are institutional investors, particularly hedge funds.

“In 2018 we raised roughly $318 million in new capital across our suite of 10 investment products,” Beck says. “And about 65 percent of those inflows came from institutional investors, dominated by hedge funds.”