Assets, Bitcoin

Why Is Grayscale Bitcoin Trust Trading at a Discount?

Since mid-March, when the COVID-19 pandemic began to upend global markets, investors have been fleeing to the relative safety of digital assets like Bitcoin. The leading cryptocurrency has seen its price surge more than 60% since late March, as investors seek refuge from the economic uncertainty caused by the pandemic.

But there’s one corner of the Bitcoin market that’s been lagging behind the rest: Grayscale’s Bitcoin Trust (GBTC). This publicly traded investment vehicle allows investors to gain exposure to Bitcoin without having to actually purchase and hold the digital currency themselves.

However, GBTC has been trading at a significant discount to its net asset value (NAV) for months now. As of June 8, 2020, GBTC was trading at a 9.8% discount to its NAV of $9.02 per share.

That means that if you were to buy one share of GBTC today, you’d be paying $8.12 for each dollar worth of Bitcoin that the trust holds.

NOTE: WARNING: Investing in Grayscale Bitcoin Trust Trading at a Discount is risky and could lead to losses. This type of investment is speculative and can be volatile. Prices for Bitcoin can fluctuate significantly, and it is possible that investors may not be able to regain their original investments. Additionally, the Trust is subject to the risks associated with the cryptocurrency market generally, including potential regulatory developments, liquidity risks, and security risks.

So why is GBTC trading at such a discount? There are a few potential explanations.

First, it’s important to understand how GBTC is structured. The trust holds a certain amount of Bitcoin, and each share represents a fraction of those holdings.

When investors want to buy GBTC, they’re actually buying shares of this trust.

The trust then uses this money to buy more Bitcoin. However, because GBTC is structured as an investment vehicle, it incurs expenses like management fees and other costs.

These expenses eat into the trust’s profits, and they also reduce the amount of Bitcoin that each share represents.

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