Bitcoin
Is the Grayscale Bitcoin Trust ETF a Millionaire Maker?
It turns out that convenience can come at a high price.
Exchange-traded funds (ETFs), or groups of individual stocks that trade under a single symbol, aim to simplify investing. Some ETFs can diversify your investments in minutes, rather than spending a lot of time sifting through and selecting dozens of individual companies to trust with your money.
In cryptocurrency, the Grayscale Bitcoin Trust ETF (GBTC -3.63%) can eliminate much of the work of owning Bitcoin (Bitcoin -2.02%).
But what’s the point of owning a Bitcoin ETF instead of just Bitcoin? Cryptocurrency has proven that it can make investors millionaires. Can this ETF do the same?
Here’s what you need to know.
What is the Grayscale Bitcoin Trust ETF?
On the surface, it’s a simple investment. The Grayscale Bitcoin Trust is a ETF which contains Bitcoin. Buying shares gives investors indirect exposure to crypto price movements.
Why wouldn’t someone directly own Bitcoin? Well, doing this can be more complicated. For example, it assigns the responsibility for security to the owner. You can hold crypto on exchanges or in physical (cold) storage, but each has pros and cons.
Suppose you lose access to your wallet or the exchange you use faces problems, such as FTX, the disgraced cryptocurrency exchange. The Grayscale ETF uses cold storage (it’s held on offline servers through a company called Coinbase Custody Trust) to protect the Bitcoin represented by your shares. Therefore, it is a safe and convenient way to benefit from investing in cryptocurrency without the burden of owning and managing it yourself.
Some factors affect the value of the Grayscale Bitcoin Trust. The fund charges a 1.5% annual fee for managing the crypto, which you wouldn’t have to pay if you managed your own instead. The ETF can also trade at a premium or discount to the underlying value of your Bitcoin at any time.
Investors should consider how the ETF trades in relation to the price of Bitcoin to decide whether to buy shares. You can do this by comparing the ETF’s share price to the net asset value per share.
Bitcoin’s Surprising Investment Returns
A quick look at Bitcoin’s success over the years makes it obvious why investors would consider adding the Grayscale ETF to their portfolios. As an asset, digital currency has easily outperformed the broader stock market over the past decade:
Bitcoin Price given by Y charts.
O investment thesis in Bitcoin it is simple: the supply of fiat currency is constantly expanding, much faster than that of Bitcoins. As the US dollar loses value (through inflation), the price of crypto increases over time. Supply grows more slowly over time as halves occur every four years or so, further limiting supply in the face of increased demand from people wanting to invest and use Bitcoin.
Therefore, token price comes down to supply versus demand. Investors’ hope is that demand will increase indefinitely as supply increases at an increasingly slow pace.
Can ETF make you a millionaire?
The million-dollar question is whether investors will pay for the convenience this ETF offers. What is the cost? Quite a lot, actually.
You can see below that the ETF has underperformed Bitcoin itself over time. These administration fees end up being quite expensive in the long run.
But that said, the fund still far outpaced the broader stock market, making the Grayscale Bitcoin Trust ETF an obvious high-potential, long-term investment that could still produce millionaires if the cryptocurrency’s investment thesis continues to play out over the next few years. years. years.
Justin Papa has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The motley fool has a disclosure policy.