Bitcoin Investment Trust Prepares For Trading

The Bitcoin Investment Trust (BIT) started making public headlines this year after it gained approval from the Financial Industry Regulatory Authority (FINRA) to sell its shares on the open market, trading under the ticker symbol GBTC.

A private offering is available to accredited investors only, restricting investments to individuals with at least $1 million in assets or a net income of $200,000+ a year. These investors purchase restricted shares at the daily Net Asset Value (NAV), which reflects the current bitcoin market price. The shares must be held by the accredited investor for a full year. For investors who have held for over a year already, their shares are now eligible for sale on the public market.

“The Bitcoin Investment Trust (BIT) 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 challenges of buying, storing, and safekeeping bitcoins.”
— – Bitcoin Investment Trust

The BIT is sponsored by Grayscale Investments, a wholly-owned subsidiary of New York-based Digital Currency Group. Michael Sonnenshein, Director of Sales & Business Development at Grayscale Investments explains, “Purchasing GBTC shares is a different investment experience than purchasing outright bitcoin.”

While order books opened up on brokerage platforms last month, nobody has actually sold or purchased an over the counter (OTC) share yet. Just last week the investment vehicle completed a regulatory process conducted by the Depository Trust Company (DTC), a clearinghouse whose purpose is to provide safekeeping through electronic recordkeeping of securities balances. The DTC process was needed to document the amount of shares in circulation, now allowing for eligible private restricted GBTC investors to deposit their shares into electronic broker accounts and other mediums of trade.

“Eligible shareholders have been given instructions on how to electronically transfer shares into their brokerage/investment accounts.  This is accomplished through a back-office system called DRS.  Upon requesting a transfer, we have been guided to understand that the transfer process takes approximately 48 hours to complete.”
— – Sonnenshein

Currently, there are ten open markets with active buy orders, with one of the largest bids being placed this morning on www.OTCMarkets.com. A $1.7M buy order was placed at the order of 5,000 BTC for $350, resulting in a $125 premium per coin at current market rate.

A constant question the community has been asking is when trading will go live. It’s not a matter of when trading goes live, but a matter of when an accredited investor who purchased the restricted shares reaches the one year mark and decides to sell. Sonnenshein tells us that “When/if these holders elect to sell we do not have control of.  So, as more investors’ shares reach the 1 year mark and elect to sell, more and more GBTC shares become available to investors looking to purchase GBTC in the public market.”

As GBTC is the first publicly available bitcoin investment vehicle, investors are eager to get involved and some are assigning a premium valuation on the shares due to the current scarcity. As time goes on, more and more of the restricted shares will enter the market circumventing the supply problem. Grayscale will continue to sell private restricted shares at NAV on a daily basis as well.  Looking past scarcity, Sonnenshein explains that there are more advantages to purchasing GBTC rather than bitcoin, which can also result in a price premium.

“Rather than having to navigate what is unfamiliar territory for most investors (who to buy bitcoin from, what price to pay, and how to safely secure the bitcoin), purchasing GBTC shares allows investors to purchase a titled security and remove the burden of the aforementioned challenges.”
— – Sonnenshein

Large holders can now have their hand in the bitcoin space without worrying over buying bitcoin, losing their private keys, getting hacked, etc. GBTC shares are also eligible to be purchased in non-taxable accounts such as IRA’s. Considering its a security, GBTC shares can be passed on to beneficiaries under estate laws as well.

For large institutions, purchasing a security is a familiar experience for their investors, lawyers, accountants, and financial advisors. Purchasing real bitcoin is not. GBTC has its annual financials publically audited by Ernst & Young LLP. The shares are offered through an established broker-dealer with an existing track record, providing shareholders and purchasers with confidence in who they’re investing with.

For the public market, it’s now a waiting game for the first accredited investor with vested restricted shares to sell on the public markets. With the DTC process completed and these investors starting to deposit their shares into brokerages, we can only expect to see the first buy order fulfilled soon.

The daily NAV data is published on Grayscales website here, and pricing data for GBTC can be found on OTCMarkets. You can also request to learn more infomation about the Bitcoin Investment Trust with their contact form.