Bitcoin has been gaining a lot of attention in recent months as a new asset class. Study after study has shown that millennials prefer Bitcoin to traditional asset classes. All this attention, combined with a market capitalization in the hundreds of billions has left Wall Street licking their wounds as more money flows from commission-generating trades led by execs and into self-managed crypto trades run by third-party companies. Wall Street found it’s solution with the launch of the Bitcoin Investment Trust in 2015. The (GBTC) Bitcoin Investment Trust is an ETF (exchange-traded fund) that buys and holds bitcoin.
The reason for this split is to decrease the price of an individual share to make it more accessible to retail investors. Currently, GBTC trades at around $1,800. This means newer retail investors using apps like Robinhood might not even be able to buy a single share, and if they are would use most of their portfolio to do so. In order to solve this problem a split is occurring in which every current shareholder will get 91 shares that are priced proportionally cheaper. Because this ETF represents an underlying asset the amount of Bitcoin it represents is also going to decrease. Currently, every share represents around .092 bitcoin. After the split, every share will represent around 0.00101 bitcoin.
Shareholders from January 22nd on will be eligible for the split and the split will occur January 26th. As with most stock splits, one can anticipate that the increase in retail investment will lead to a price increase. Retail investors also carry with them more volatility and are much more susceptible to FUD (Fear, Uncertainty, Doubt) and FOMO (Fear of Missing Out).
Firstly, it’s important to recognize that GBTC’s underlying asset, Bitcoin is one of the most accessible assets ever created. With easy to use “exchanges” like Coinbase it’s time from intention to buy, to owning bitcoin is much shorter than Stocks, Gold, or other underlying assets traditionally represented by ETF’s. For instance, we’ve seen Coinbase growing at insane rates of 125,000 users per day. If anything is clear, it’s that retail investors don’t really need a cheaper way to invest in bitcoin.
Furthermore, because GBTC is the only ETF who’s underlying asset is bitcoin it trades at a high premium, over 50%. This means if you can buy a bitcoin for $10,000 on Coinbase, the share holding equivalent of a Bitcoin on GBTC will cost you $15,000. Finally, the fund comes with a 2% management fee. This is incredibly high for an unmanaged ETF and is excessive.
Nonetheless, it should be interesting to see what kind of effect the split has on the price. Despite all the reasons not to invest in the ETF over Bitcoin, will retail investors snap it up as fast as they have anything else associated with crypto? Time will tell.
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Last modified: May 20, 2020 9:10 PM UTC