Grayscale, known as the "gray scale" in the crypto community, has never stopped buying Bitcoin—even at prices exceeding $17,000 per coin.
On November 17, Grayscale's BTC Trust added 1,773 BTC to its holdings. To date, Grayscale holds over 500,000 BTC, accounting for 2.38% of Bitcoin's total supply. If lost Bitcoins are excluded, Grayscale's holdings represent approximately 3.37% of the actual circulating supply.
With such aggressive buying—absorbing newly mined Bitcoin like a mythical "Pixiu" (a Chinese creature that only consumes and never excretes)—many are questioning this legitimate Bitcoin fund:
- Who's behind these purchases?
- Why do investors pay a 2% management fee instead of buying Bitcoin directly?
- Is this strategy truly profitable?
Let’s dive deep into Grayscale and answer these pressing questions.
Key Takeaways
- Grayscale’s background and monopoly in the market
- Why Grayscale only buys and never sells Bitcoin
- The appeal of buying Bitcoin through Grayscale
- Who’s investing in Grayscale?
- How to arbitrage with GBTC
- Who’s "holding the bag" for GBTC in secondary markets?
Grayscale’s Background and Overview
Grayscale is backed by Digital Currency Group (DCG), a crypto industry giant with ties to Mastercard, Nasdaq, the Chicago Mercantile Exchange, and Bitcoin Core developers. This legitimizes Grayscale’s operations.
As an asset management firm, Grayscale offers multiple trusts:
- BTC Trust (GBTC)
- BCH Trust
- ETH Trust
- ETC Trust
- LTC Trust
The GBTC and ETH Trust are SEC-registered, giving Grayscale a monopoly until a Bitcoin ETF is approved.
Investment Thresholds
- GBTC: $50,000 minimum
- Other trusts: $25,000 minimum
All assets are stored in Coinbase’s cold wallets (Coinbase is a DCG subsidiary). Management fees range from 2%–3%, with GBTC at 2%.
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Bitcoin Trust (GBTC) Structure
GBTC, launched in 2013, was the first publicly traded Bitcoin investment tool. It gained broader market access after SEC registration in 2020.
Key Features
Non-Redeemable
- Investors cannot redeem Bitcoin, eliminating sell-side liquidity risks.
Secondary Market Trading
- GBTC shares trade like stocks after a 6-month lock-up period.
Bitcoin-Based Fees
- Management fees reduce each share’s Bitcoin content over time.
GBTC Metrics (Nov 19, 2020)
- Shares outstanding: 540,935,800
- Bitcoin per share: 0.00095236 BTC
- Total BTC held: ~515,000 ($90B at $17,500/BTC)
GBTC Subscription Models
Investors can buy GBTC via:
- Cash → Grayscale buys BTC → Issues GBTC shares
- Bitcoin → Directly exchanged for GBTC shares
79% of investors opt for Bitcoin出资 (2019 data).
Why Choose GBTC Over Direct Bitcoin Purchase?
- Security: No self-custody risks.
- Compliance: Avoids exchange-related issues.
- Estate Planning: Easier inheritance transfer.
But the real driver? Profitability through arbitrage.
GBTC Arbitrage Strategies
1. Basic Arbitrage
- Buy GBTC → Wait 6 months → Sell at a premium.
- Risk: Bitcoin price decline.
2. Bitcoin Lending Arbitrage
- Borrow BTC (e.g., from Genesis).
- Swap for GBTC.
- Sell GBTC post-lock-up.
- Repay BTC loan.
- Profit: Premium minus interest.
3. GBTC Share Lending Arbitrage
- Borrow GBTC → Sell short → Use cash/BTC to repay later.
- Breakeven: Premium must exceed ~17%.
4. Premium Lock-In Arbitrage
- Buy GBTC + Short GBTC → Fixed profit.
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Who’s Buying GBTC?
Notable Institutional Investors (2020 Data)
| Institution | GBTC Shares Held | Notes |
|------------------------|----------------------|--------------------------------|
| BlockFi | 24.3M (4.5%) | Crypto lending platform. |
| Three Arrows Capital | 21.2M | Leading crypto hedge fund. |
| Ark Invest (ARKB) | 7.3M | "Bitcoin is greater than Apple." |
| Rothschild Investment | 24.5K | Minimal but symbolic exposure. |
Over 85% of GBTC holders remain undisclosed.
FAQs
Q1: Why does Grayscale never sell Bitcoin?
A: Its trust structure prohibits redemptions, ensuring continuous demand.
Q2: Is GBTC a good investment?
A: It offers exposure to Bitcoin without custody hassles, but premiums and fees eat into returns.
Q3: Who’s buying GBTC at high premiums?
A: Institutions seeking arbitrage and long-term holders betting on Bitcoin’s appreciation.
Q4: How does GBTC impact Bitcoin’s price?
A: Sustained buying reduces circulating supply, creating upward pressure.
Q5: Can retail investors participate?
A: Yes, but the $50K minimum limits accessibility.
Q6: What’s the biggest risk with GBTC?
A: Premium collapse or Bitcoin price drops eroding profits.
Grayscale’s dominance highlights institutional crypto adoption, but its opaque ownership raises questions. Whether this model sustains depends on Bitcoin’s long-term trajectory and regulatory developments.