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Monday, April 19, 2021

The Fascinating Story of Bitcoin Investment Trust(OTCMKTS:GBTC)

Bitcoin Investment Trust(OTCMKTS:GBTC) has come down significantly in recent weeks since its  $1,064.95 highs after reports surfaced that the Chinese Government plans to close down local cryptocurrency exchanges. This bad news comes days after China outlawed ICOs as a way of raising money in the Country.

All this bad news coming from China has temporarily halted the spectacular rise of Bitcoin that has risen from less than a penny back in 2009 to recent highs over $5,000 a token. Currently Bitcoin is trading around $4,200 a slight recovery since dropping below $4,000 briefly on Satruday.

Bitcoin Investment Trust(OTCMKTS:GBTC) is a private, open-ended trust that is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. It enables investors to gain exposure to the price movement of bitcoin without the challenge of buying, storing, and safekeeping bitcoins. The BIT’s sponsor is Grayscale Investments, a wholly-owned subsidiary of Digital Currency Group.

According to the Quarterly Report issued by the Company on August 8, GBTC had 174,174 bitcoins on hand as of June 30, 2017 up from 145,258 at the same time last year. A 19.91% increase.

There continues to be significant controversy on GBTC with many sell side Investors calling the Fund incredibly overvalued. The problem is that Bitcoin Investment Trust maintains a market value of around $1.3 billion while the 174,174 bitcoins held by GBTC are worth less than $750 million.

Sell side Investor Andrew Left recently commented on GBTC market valuaition as compared to its Bitcoin holdings “That alone is completely ridiculous, but on top of that they don’t even have insurance for the bitcoin that they are custodians of.”

Another sell side analyst Sumit Roy from ETF.com stated “For investors buying into the fund, such large premiums are a disaster waiting to happen,” he said. Roy went on to say that part of the reason GBTC may have risen to so high initially is because it’s one of the first and very few investments that offer an opportunity to buy into bitcoin without having to purchase the token itself from an exchange.

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On September 6 GBTC announced it continues to work with the Trust’s professional advisors and third-party service providers to understand the implications for the Trust of the fork in the Bitcoin blockchain that resulted in the creation of Bitcoin Cash.

To maximize shareholder value, the Sponsor has begun a process with the Trust’s professional advisers to evaluate, among other options, the feasibility of forming an entity to hold the Bitcoin Cash and distributing interests in that entity to the Trust’s shareholders. As part of that evaluation, the Sponsor expects to engage in discussion with relevant regulators, including the U.S. Internal Revenue Service and the U.S. Securities and Exchange Commission, to ensure that the Trust continues to be treated as a grantor trust for U.S. federal income tax purposes. Receiving regulatory guidance in respect of such a distribution, while prudent, may be a lengthy process of several months or more.  There can be no assurance regarding whether or when the Trust will obtain such guidance. If and when formal guidance is received, the Sponsor will determine a record date for any potential distribution. However, the Sponsor can offer no assurance as to whether or when shareholders of the Trust might participate in any value attributable to Bitcoin Cash. If and when further updates are made available, the Sponsor intends to disseminate relevant information to the Trust’s shareholders.

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Currently trading at a $1.3 billion market valuation GBTC has seen a spectacular rise over the past year along with the price of Bitcoin which saw highs over $5,000 before coming back down recently to the low $4k range after reports surfaced that the Chinese Government plans to close down local cryptocurrency exchanges as well as outlaw ICOs as a way of raising money in the Country. There continues to be significant controversy on GBTC with many sell side Investors calling the Fund incredibly overvalued. The problem is that Bitcoin Investment Trust maintains a market value of around $1.3 billion while the 174,174 bitcoins held by GBTC are worth less than $750 million. We will be updating on GBTC when more details emerge so make sure you are subscribed to Microcapdaily so you know what’s going on with GBTC.

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Disclosure: we hold no position in GBTC either long or short and we have not been compensated for this article.

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