GBTC now trading 60% higher than the underlying asset, bitcoin

Alex Sunnarborg , 10 May 2016 - BitcoinEtfPrice

Alex Sunnarborg is the Founder and CFO of Lawnmower.io - the popular iOS & Android, bitcoin investment app. 

The Bitcoin Investment Trust (BIT) enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins.

GBTC is the publicly quoted symbol for shares of the BIT, “an open-ended trust that is invested exclusively in bitcoin,” and sponsored by Grayscale Investments. The Trust was formed late in 2013, and qualified for public trading on the OTCQX market early in 2015.

GBTC and the BIT can be purchased in certain retirement accounts for potential tax advantages, which can’t be achieved through direct bitcoin purchases.

Now for a quick look at some of the differences in the BIT and GBTC ,and their historical prices as compared to the underlying asset — bitcoin. Each GBTC share represents ownership of approximately 0.1 bitcoin:

Only qualified accredited investors may invest directly into the BIT, and purchase shares at the daily NAV. These shares “are restricted and subject to significant limitations on resale and transferability”.

As we can see, the BIT NAV has historically followed the underlying price of bitcoin pretty closely.

BIT annual report May 2016Source: BIT 2015 Annual Report  - Page 81

Conversely, investors may choose to purchase eligible BIT shares on OTCQX under the ticker GBTC, at the applicable market price. These securities have been deemed freely tradeable under SEC Rule 144, and are not subject to restrictions on resale or transferability once purchased.

GBTC has been gradually increasing in price over the last couple of months, and much quicker than the underlying bitcoin. Last week, the daily GBTC over bitcoin premium averaged over 60%.

GBTC BTC comparison May 2016Sources: GBTC data — Yahoo! Finance Daily Historical Adjusted Closes & BTC data — BraveNewCoin Daily Historical Prices

When looking at the bitcoin market as a whole, one should be cognizant of the supply and demand for not only the underlying asset, but also for related investable assets, funds, derivatives, etc.

For more information on the BIT and GBTC, check out this Investopedia article (for a higher level look) and this annual report (for a more detailed view).