Bitcoin Investment Trust v. Bitcoin (BTC) – Motley's Fool

Few assets have ever matched the incredible gains made by bitcoin in 2017. Interest in crypto-currencies has climbed along with their prices. In particular, bitcoin prices that started the year under the 1,000 USD mark reached nearly 20,000 USD in early 2018. However, since then, Bitcoin has followed its usual two-step approach. , a step back, losing two-thirds of its value. This has diverted many investors from cryptocurrency, although others consider it a good time to buy bitcoin.

If you want to invest in Bitcoin, you have several choices. Investing directly in Bitcoin requires custom accounts involving the safe processing of cryptocurrency. Instead of this extra effort, many investors have turned to the Bitcoin Investment Trust (NASDAQOTH: GBTC), an alternative that trades more like a traditional stock. Below, we will compare these two investments to determine which is the most logical at the moment.

The basics of bitcoin

Bitcoin has been around for about 10 years now, and a lot of things have been written about how it works. From the investment point of view, however, the thesis of buying bitcoin is relatively simple. Cryptocurrency advocates claim that with a fixed supply of bitcoins, increasing demand over time should lead to higher prices. Although hundreds of other crypto – currencies exist and others become available all the time, the status of bitcoin as the first user gives it a reputation that no other token can match.

The main challenge for investors in potential bitcoins is how to buy it. Many companies specialize in providing Bitcoin portfolios to users, allowing them to link Bitcoin accounts to traditional bank accounts and facilitate the purchase and sale of Bitcoin. Some companies also accept purchases through ATMs, the purchased bitcoin is also deposited in a wallet.

More recently, derivatives related to bitcoin have become available. Bitcoin futures let you take advantage of bitcoin price movements, but they do not give you the right to take ownership of bitcoin itself. In addition, futures contracts generally require special treatment from a broker, and not all brokerage firms permit the trading of futures contracts.

How Bitcoin Investment Trust is different

Many investors were not comfortable with all the obstacles they had to face to invest directly in bitcoin, particularly because of some high-profile hacking incidents that tainted the popular bitcoin trade . To serve these investors, funds such as the Bitcoin Investment Trust offered a much easier alternative to use for investment.

The main investment objective of Bitcoin Investment Trust is to own bitcoins. The trust currently has approximately 200,000 bitcoins in its portfolio. Each of the 201.5 million shares outstanding therefore has an intrinsic value equal to just under one thousandth of a bitcoin. For example, with prices around $ 6,500, Bitcoin Investment Trust accounts for about $ 6.50 worth of bitcoins.

The good thing about the Bitcoin Investment Trust is that the buying and selling of stocks is like trading shares. Whenever the market is open, shares of trust are available. The disadvantage is that the shares of the trust are not traded on a large exchange, but even if the market on which they are traded sometimes has less cash, the interest for the trust has been high enough to maintain a reasonably liquid market.

In the past, Bitcoin Investment Trust's main problem was that its shares cost far more than the intrinsic value of bitcoin it held. Premiums of more than 100% were not uncommon when Bitcoin was the most popular. Now the premium is much more reasonable (10%), although it's still 10% more than you should probably pay for stocks.

In addition, Bitcoin Investment Trust is heavily charged. Annual fees rise to 2% of assets. Since bitcoins do not generate revenue, fees gradually erode the amount of bitcoins represented by each action. This is not critical for short-term traders, but if you intend to use the confidence to invest in bitcoin in the long run, it's a big price to pay .

Bet on bitcoin? Paste with the original

If you think that bitcoin has a promising future as an investment, it's useful to know how it works by using a bitcoin portfolio to directly hold cryptocurrency. Bitcoin Investment Trust is a useful tool for short-term traders, but the costs involved introduce risks that those who pay premiums of 50%, 100%, or more, are now experiencing too much.

Dan Caplinger has no position in the shares or the encrypted currencies mentioned. The Motley Fool has no position in the shares or cryptocurrency mentioned. Motley Fool has a disclosure policy.