Here’s the thing. In the world of investing, no one can predict what’s going to happen next with cryptocurrency. It’s a black box inside a safe buried in a mountain under the ocean. The more you try to research it, the further down the rabbit hole you go. The more you’re sure it’s going up, the faster it turns down. The instability though can be exhilarating. Like riding a rollercoaster that’s powered by a rocket with no seatbelts.
But that’s the thrill. The inherent danger means the highs are often higher, even if the lows are lower. I’m pretty certain I read recently that Mark Cuban said when a Bitcoin hits a million-dollar value, he’s running for president. There’s certainly no lack of interest in the coin, but unless you’re Mark Cuban, possibly our president someday (fingers crossed for all of us who hold positions), buying Bitcoin is a huge gamble. I’d say for many of us, it falls squarely in the all-eggs-in-one-basket category.
Which brings us to an alternative way to get exposure to Bitcoin (and the second largest cryptocurrency, Ethereum) that doesn’t have to break the bank or lead to too much exposure on a single coin, instruments that trade under the symbols GBTC and ETHE. While people think of these as ETF’s they actually aren’t, though have a lot of similarities. They allow exposure to Bitcoin and Ethereum, without actually having to own the coins, much like foreign equity market ETF’s allow you to hold exposure to those markets. Why aren’t they exactly like ETF’s then? Because they are closed end funds, and at the moment they are popular because there aren’t yet true ETFs that have been approved by the regulators. Remember the black box mentioned earlier? Because these aren’t ETF’s, their value can deviate from the underlying values of Bitcoin and Ethereum, and sometimes they can deviate a lot, so buyer beware. But, investing in crypto this way doesn’t require you to open a cryptocurrency account, you just have to be aware that their price can move more or less than it should compared to the actual coins. Of course, this can work in your favor or against it, it’s additional risk. As of my writing this, Bitcoin is trading at $38,877 a coin. A share of GBTC is $38.96, so buying one GBTC would be correlated to owning a small fraction of a Bitcoin. You could own that small fraction in a cryptocurrency account, or have a related exposure by buying one GBTC.
All of this is a longwinded way of saying that you can get exposure to Bitcoin and Ethereum through your regular equity brokerage account. And far more importantly, I want to raise your awareness through this example that you can get exposure to many, many types of assets through ETFs in your equity account. It’s a lot easier than it used to be before all these ETFs were created. For example, with gold you can just buy one of the gold ETFs, you don’t need to put bullion in a vault or trade financial futures.
In investing, FOMO plays an outsized role in the choices we make sometimes. And there’s not many bigger fears out there right now than missing out on an opportunity to gain on Bitcoin. While we haven’t yet built out crypto-trading on our platform (more to come on that), we do offer units of GBTC and ETHE to our members. Compared to buying a coin, transacting in GBTC is quite easy. To be crystal clear, I’m not endorsing owning cryptocurrencies, I certainly don’t know how that will work out and it’s risky. But I realize many people would like to, which is their right, and so I want to let people know they have different ways of doing so.
As the wild west of the bitcoin world grows more and more defined, as the regulators begin to unravel the mysteries of an un-regulated digital currency and the market value becomes clearer, many people are debating whether this is the time to gain some exposure. Done correctly and added as a small fraction of a well-balanced portfolio, one can limit what’s at risk. This is a popular trade these days but be careful if you decide it’s for you. For the sake of prudence, I have to say it’s safest to assume the worst-case scenario is possible, of possibly losing it all. If it goes to the moon, you won’t have missed out. But you just might be playing “Hail to the Chief” to President Cuban.
Just for the record, we aren’t advocating for these holdings by any means, we are raising awareness because their asset size has gone up 9x recently, so please be aware of the risks as per this disclosure paragraph:
GBTC and ETHE are speculative investments that have significant risks, including market and liquidity risk. These securities may trade at a significant premium or discount to the value of a basket of cryptocurrencies, and the premiums or discounts may persist and may fluctuate rapidly based on supply and demand for the shares. As a shareholder you do not own the underlying cryptocurrency. These securities are not mutual funds or an exchange traded funds, and your shares are not redeemable. Shares are publicly quoted on the OTCQX market which does not require the same level of public disclosure as registered funds. You can learn more about these securities and the risks of investing in them at https://grayscale.co or the OTC Markets website at otcmarkets.com
Identification of a particular security in this communication does not constitute a solicitation of the security or a recommendation to buy, sell, or hold the security. All of Us does not provide investment advice and does not hereby recommend any security or transaction.