GBTC is the WORST Way to Buy Bitcoin (Unless...)

GBTC makes it easy to hold Bitcoin in traditional brokerage accounts. Here's why it's actually the WORST way to buy & own Bitcoin (and what you should do instead).

00:00 - Intro
1:04 - How Does GBTC Work?
3:21 - GBTC Benefits
4:39 - Why GBTC is the WORST Way to Buy BTC
4:55 - GBTC Fees
6:51 - GBTC Premium
8:38 - GBTC in Retirement Accounts is Overrated
10:51 - What to Buy Instead of GBTC

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First we need to understand the structure of the Grayscale Bitcoin Trust and the convenience that it offers. To put it simply, GBTC gathers money from investors, uses it to purchase Bitcoin, and issues shares to investors that represent a portion of the fund’s Bitcoin holdings. However, a very important characteristic to understand about GBTC is that it operates as a closed-end fund. With this characteristic, Grayscale has full control over the amount of money flowing in and out of the fund, as well as the amount of Bitcoin they own at a given time. And because the number of available shares is often a fixed supply, new investors have to go to the public market to invest in the fund, where prices will be heavily influenced by demand.

Even though it’s not a perfect solution, GBTC does serve its purpose as a vehicle for gaining direct Bitcoin exposure in traditional markets.
• Makes it convenient for investors to add Bitcoin to their current portfolios.
• Simplifies taxes
• Hold Bitcoin in a retirement account

So with these benefits, why is GBTC an awful way to buy Bitcoin? It really comes down to two issues:

• Management fees
2% annually. This is a cut that Grayscale takes for operating and managing the Bitcoin trust. According to their SEC filings, the interest accrues daily and is paid out on a monthly basis for the previous month. Every month, they are selling some of your Bitcoin to collect that 2% annualized fee. Over time, this means that each share represents less and less Bitcoin.

• Premiums
The fund nearly ALWAYS trades at a premium. According to Ycharts, the average premium of GBTC is more than 30%, although there’s many time frames where it’s traded at even higher premiums. So historically, GBTC is an incredibly expensive way to buy Bitcoin, because you’re paying more to own it with GBTC than what it actually costs to buy it outside of traditional markets.

GBTC + Retirement Accounts
Of course, like I said, the one exception MIGHT be if you are using GBTC as a way of holding Bitcoin in a retirement account. However, I want to challenge investors to consider the following problems:
• Doesn't protect against management fees.
• Doesn’t solve the issue of paying a premium for Bitcoin.
• I don’t think the tax benefits are sure to make up for these costs.

What to Buy Instead of GBTC
It just makes more sense in many cases to buy Bitcoin directly. It’s easier, safer and cheaper than ever, and you can even earn interest on it to increase your returns further.

However, I still see the value in the convenience of a retirement-friendly Bitcoin investment. And to be completely honest, I still want to hold one of these investments in my retirement account - but GBTC isn’t it. Fortunately, I think it’s the first of many to hit the markets, and as more of these funds are created, competition should lower management fees and they’ll be able to track Bitcoin’s price more closely.

Let me know how you are buying Bitcoin in the comments, especially if you are using an investment product that I didn’t mention in this video. Thanks for watching, and I’ll see you next week.

#Bitcoin #GBTC #Cryptocurrency

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DISCLAIMER: NOT FINANCIAL ADVICE.
The content in this video should not be used as the basis for any investment decision, as it is for entertainment purposes only. Additionally, some of the links contained in this description are affiliate links. I may earn a commission via Amazon, WeBull, M1 Finance or Robinhood should you choose to purchase or sign up at the links provided.

[leftblank]

Buying on coinbase definitely is a premium. They add a spread to every purchase. You lose approx 6% with every buy. Additional is lost any time you sell. Ugh

Coinbase or any central authority could seize all BTC and not let Graysville access it by directive of the govt. Byc grants sovereignty hence not your keys not ur btc applies to all.

I would still consider buying GBTC because of the discount to NAV currently

[TheRocketpony]

Held gbtc for a few years (in a roth IRA - so at least I was smart about it) and sold it at one of the recent highs, before the recent inversion of the premium situation luckily. With so many additional easier to understand options for buying these days (Blockfi with interest and provides tax documents) I completely agree with this assessment that it makes sense to start holding it more directly until an open end ETF fund is actually approved... It seems like regulators have been dragging their feet on the ETF issue for quiet some time.

[NiceGuyEddy]

Correct me if I'm wrong, but it looks like currently OBTC is trading at a 29% (premium) and GBTC is trading at a -11.75% (discount). If this is true, OBTC might be better for the very long term, but GBTC is better for the short term.

[mikekorn]

I own BTC & ETH & ADA in a coinbase account buy & holding. I have a TD A. Roth IRA for scaling in N out of the proxy ETHE & GBTC stocks. So far in 2021 i'm up 16.5K & 1.8K respectively. What do you think?

[wushu]

I bot some at -15% premium, gonna hold until we hit ATHs again. Hopefully the premium pops, either way I'll flip it into BTC. It is very annoying to watch how many BTC you hold decay over time due to the management fee.

[fmilan]

I buy BTC directly. I have some BTC on my 401K too. Now, what are the options for ETH? Again, I bought ETH when it was really cheap and also bought ETHE. Is there any options?

[absbica]

Hi Tyler. I recently jumped on the GBTC in my Roth Ira because the premium was at a -16% discount. So I was purchasing my shares at a BTc price of $52, 000, not $62, 000. So given this particular scenario, do you think that is an added benefit, especially since the expectation of BTC is estimated to rise to the $100-150k mark before stalling out with the halving cycle woes?

[sunbright]

You should talk about TQQQ pros and cons since I can't find out much about TQQQ. It would help thx.

[dirtymike]

The average premium of 30% is a good thing for buyers (right now).

[bhavinpatel]

What are your thoughts on the Btcc etf

[rongou]

Now that GBTC trades at a -17% premium, it's the worst way to hold bitcoin in a retirement account, except for all the others :)

[cyofish]

I disagree with his opinion. Every securities (stocks/bonds) sells at a premium and a multiple of the underlying NAV. That has been and always will be the nature of the equity market. By the way, GBTC is selling at about an 8% discount the past few months compared to the price of Bitcoin.

[vicwahbyphotography]

Great video Tyler! With GBTC expressing interest and determination to convert into a spot ETF, doesn't the whole outlook for investors of GBTC change completely? I'm concerned that price has dropped below NAV, but if / when they convert, price snaps to back up to full BTC NAV, right? So, investors have a safety net and new investors buying at a discount have an opportunity to buy at a discount with light at the end of the tunnel. Thoughts appreciated.

[skylerskyler]

MSTR is the best alternative way to invest in Bitcoin hands down.