馃攳
How To Pick The Winner For Long Term Upside - GBTC versus BITO - YouTube
Channel: Digital Corey
[0]
- In my prior video in this series,
[1]
I talked about some ETF options available
[4]
for people that are
interested in getting exposure
[6]
to crypto generally.
[7]
In this video,
[8]
you'll learn the difference
between the two most popular
[10]
ETF options for Bitcoin at the moment,
[12]
the Pro-scale Bitcoin
Strategies ETF Ticker BITO,
[16]
and GBTC, the Grayscale
Bitcoin Futures Trust.
[19]
Stay tuned and buckle up.
[21]
(calm music)
[26]
I'm Corey, and on this channel
I help you decode technology
[29]
and innovation to grow
your wealth on the journey
[32]
to financial independence.
[33]
(whooshing)
In this video,
[34]
you will learn the pros
[36]
(whooshing)
and cons of the GBTC,
[38]
the Grayscale Bitcoin Trust
[40]
as compared to the ProShares
Bitcoin Strategy ETF BITO.
[44]
Next, we'll look
[45]
at why I think GBTC wins out
(whooshing)
[47]
for long-term value-oriented investors.
[50]
We're looking for exposure
to Bitcoin as an asset class.
[54]
To kick things off,
[55]
let's talk about the ProShares
Bitcoin Strategy ETF.
[59]
So the day has finally arrived.
[61]
US citizens have their
first Bitcoin ETF product.
[65]
While this is a great marketing ploy,
[67]
most people would expect
to be buying an ETF
[69]
to buy an old Bitcoin, and
this is actually not the case.
[72]
Additionally, folks
who've been in this space
[74]
for a long time know
[75]
that the Grayscale Bitcoin
Trust has actually been
[77]
around for a number of years already.
[79]
So what's the hype
[80]
around the ProShares Bitcoin Strategy ETF?
[83]
(whooshing)
Specifically,
[84]
this ETF ticker BITO
(whooshing)
[86]
is a futures-based Bitcoin ETF.
[89]
So let's break down what
is a futures-based ETF?
[93]
And this is gonna apply generally
[95]
to all futures contract based ETFs.
[97]
Futures contracts are
derivative instruments.
[99]
This means that they derive their value
[101]
from some other underlying asset.
[104]
In this case, the Bitcoin Strategy ETF
[107]
from ProShares derives its value
from the futures contracts,
[111]
which are based on the
future price of Bitcoin,
[114]
which is all, again,
[115]
regulated on the Chicago
Mercantile Exchange.
[117]
What this also means is that
futures contracts expire
[121]
at the end of each month in this case.
[123]
That means that the BITO ETF,
at the end of every month,
[127]
is required to roll the futures contract,
[130]
which means purchase the
next month's contract.
[133]
The issue with this, potentially, is that
[136]
where the future month's contract
[138]
(cha-ching sound effect)
is more expensive
[140]
than the current contract the ETF holds,
[142]
then it's said to be in contango.
[144]
And this means, again,
[145]
that the future month costs
more than the current month.
[148]
It's also possible that the
ETF could be in backwardation,
[152]
which means the current
month's contract held
[154]
by the ETF is actually more
expensive than the next month's.
[157]
This whole concept leads
to the issue of rolling
[161]
that this ETF will have
to do while it exists.
[163]
And that means that every single month,
[165]
at the end of the month,
[166]
the ETF will have to roll
that futures contract forward.
[170]
In my prior video,
[171]
I discussed the issue of
expenses as it relates to ETFs
[175]
in the cryptocurrency and
Bitcoin-based arena, as compared
[178]
to a standard Vanguard Total
Stock Market Index ETF,
[182]
which is passively managed
[184]
and doesn't have these
sorts of roll-type expenses.
[187]
If you wanna learn more about that topic,
[189]
(whooshing)
I'll put a link down
[190]
in the description,
[191]
so you can watch that video.
(whooshing)
[192]
Next, we have the Grayscale Bitcoin Trust.
[194]
This is also called GBTC,
[195]
and this was actually the
first product available
[198]
in the US market that
would allow an investor
[200]
to get direct exposure
to the Bitcoin price.
[204]
This trust is actually
fairly straightforward
[206]
and it does actually hold Bitcoin.
[208]
However, there are a few
distinctions that we'll go over
[211]
and how this is different
[212]
from the futures-based ETF product.
[214]
GBTC is a trust created by Grayscale,
[217]
which is a pioneer in
using the trust structure
[219]
to allow US investors to get
access to digital assets.
[223]
All Grayscale products follow
the same life cycle process
[227]
to meet historical US
regulatory requirements
[230]
and restrictions.
[231]
Let's go over that life cycle quickly.
[232]
Step one, there's a private placement.
[235]
This means that if you're
an accredited investor,
[237]
by US rules, which means
you have over $1.1 million,
[241]
not including the value of your house,
[243]
and you could invest
in a private placement.
[245]
This is similar to how
private investors would invest
[248]
in the latest tech startup.
[249]
These rules exclude everyday
people from getting in
[252]
on the ground floor.
[253]
And this is actually
[254]
why people really like the
cryptocurrency markets.
[256]
There's historically, in
the cryptocurrency markets,
[258]
no gatekeeper dictating a person's ability
[261]
to get involved early
and reap the same upside
[265]
as an early Google investor
[266]
or Facebook investor or Amazon investor.
[268]
So next, after the private placement
[271]
and one year has passed,
[272]
investors in the trust, GBTC,
[275]
are able
[276]
(cha-ching sound effect)
to sell their shares
[277]
to third parties.
[278]
This is where a Grayscale goes
[280]
and gets regulatory permission
to get a quoted share price,
[283]
that you see on any brokerage account
[285]
and you see on the stock exchange,
[286]
and then the original investors
[288]
in that private placement
are actually able
[291]
to sell their shares
through the stock market.
[293]
GBTC does not actually sell BTC,
[297]
the trust buys and hold Bitcoin.
[298]
And when you buy GBTC, for example,
[301]
you aren't buying newly
created shares like in an ETF.
[304]
You're actually just buying the shares
[306]
that were previously
issued to other parties
[309]
who participated in
that private placement.
[311]
Next, once regulatory approval is granted,
[314]
the trust is able to
list over-the-counter.
[316]
This is OTC.
[318]
This means that anyone can buy the shares
[319]
via their brokerage account.
[321]
Finally, you've got the trust
becoming a reporting company,
[323]
which just means
[324]
that it meets certain
regulatory requirements
[326]
for audit and reporting.
[327]
So now, from your perspective,
[329]
you can just go into your
brokerage app or website,
[332]
and you can just hit the buy button.
[333]
Under the hood, all this
trust structure stuff
[335]
that we've discussed here,
[336]
you don't actually have
to pay attention to it.
[338]
However, there's one case
where it does become relevant.
[342]
When you compare, let's
say, GBTC and BITO,
[345]
the trust structure is a
closed-end fund structure.
[349]
And what this means is
[350]
that there's the actual price per share
[353]
that you see on the investment exchange.
[355]
And then there's the value of the assets.
[358]
This is the net asset value.
[359]
So this refers to how many
Bitcoin that GBTC actually holds
[364]
and what they're worth versus
the actual price per share
[369]
of GBTC.
[370]
One of the critiques of
this type of a structure,
[373]
which is a trust-based structure,
[374]
is that there's gonna be a spread,
[376]
a difference between
price you pay for shares
[379]
and the actual underlying value.
[382]
Why is that?
[383]
That is because you're not able to create
[386]
and destroy shares of GBTC
in the same way you would
[390]
for any other traditional ETF,
[392]
like the Vanguard Total Stock Market ETF.
[395]
(whooshing)
When someone buys,
[396]
new shares are issued.
[397]
When someone sells,
(whooshing)
[398]
the assets underlying are sold
[400]
and those shares are then destroyed.
[401]
(whooshing)
That way,
[402]
there is a very small difference
[404]
between the underlying value of the asset
[406]
and the actual price of the shares.
[408]
Because the trust structure
of GBTC doesn't allow you
[411]
to actually create those new shares,
[412]
you end up with, potentially,
a discount or a premium.
[415]
Now, that can be to your benefit.
[417]
Let's use an illustration
to show the difference
[420]
between the actual price per share of GBTC
[423]
and the actual market price.
[426]
This is gonna show you
visually why the discount
[430]
to the net asset value can
actually be to your benefit.
[433]
As you can see here,
[434]
GBTC is actually trading
at about a 15% discount
[438]
to the value of the actual
Bitcoin that it holds.
[441]
This is where investors, I think,
[443]
that are long-term oriented
[445]
and value-oriented could
take a really close look
[448]
at this product and basically
buy it on a discount.
[450]
Again, everyone's facts and
circumstances are different,
[453]
and you'll have to do your
own research to make sure
[455]
that this is something that fits
[457]
into your own time
horizon and risk profile.
[460]
One of the attractive natures of GBTC is
[463]
that it holds about 3.4%
of all the actual Bitcoin
[467]
in circulation, which is
roughly 648,000 Bitcoin.
[471]
And so, investors who really don't want
[473]
a futures-contract based product,
[475]
they wanna know that the shares
[477]
that they hold have an
actual value per Bitcoin
[479]
that can be calculated,
[480]
tend to like this GBTC product,
[482]
coupled with the fact that
as we discussed above,
[485]
it's actually trading at a
discount to those Bitcoin
[488]
that it actually owns,
[489]
which is why value-oriented investors
[492]
may find this particularly enticing.
[494]
Okay.
[495]
So what?
[495]
For those that stuck
around this far, thank you.
[497]
Next, let's get into why I
think GBTC is a great option
[501]
for value investors and
for people interested
[503]
in taking a long-term Bitcoin position.
[506]
Unlike futures Bitcoin products,
[508]
as we discussed above,
[510]
which have to roll futures
contracts each month
[512]
and incur fees,
[514]
GBTC is just a trust that
buys Bitcoin and never sells.
[518]
We also know that based on the math,
[520]
GBTC is, at the time of
this video, somewhere around
[524]
(cha-ching sound effect)
a 15% discount
[526]
to the actual value of the
Bitcoin held by the trust.
[529]
Given that GBTC is also a
licensed trust that trades
[533]
on the exchange in the US
[534]
and the fact that we have news
that they're actually looking
[538]
to apply to convert into a true ETF,
[542]
when GBTC converts into
an actually an ETF,
[545]
you're going to capture that premium.
[546]
So in this example,
[548]
to simplify, if GBTC today
is trading at a 15% discount
[552]
to its net asset value,
[553]
(ding sound effect)
we know GBTC
[555]
has filed an application
to actually convert
[557]
into a traditional ETF.
[559]
When it does that,
[560]
that will mean, as I described previously,
[562]
that shares when they're
purchased are created,
[565]
and when they're sold are destroyed,
[566]
then that discount should quickly adjust
[569]
to an actual market price.
[571]
So the moment you hear a news story
[573]
that GBTC is actually
going to convert officially
[576]
into an ETF,
[577]
investors should be able
to capture that alpha,
[579]
that additional return.
[580]
This is why long-term
value-oriented investors really
[584]
like the GBTC product.
[586]
Okay.
[586]
So you may wonder then, this
sounds all great and good.
[588]
When is that gonna happen?
[589]
Well, the answer to that is,
[591]
of course, no one actually
knows when it's gonna happen.
[593]
If I were to give an educated
guess based on the fact
[597]
that BITO, the futures-based ETF,
[599]
has just recently launched,
[601]
based on the fact that the
demand for BITO has been extreme,
[605]
and we've seen assets under management
[607]
for that product quickly reach $1 billion.
[609]
I would suspect
[611]
that market participants
will be pressuring regulators
[614]
to bring this product to market.
[616]
The reason is there's a clear demand.
[617]
And so, if I were forced to have to guess,
[620]
I would say somewhere between
six months and 18 months,
[623]
we're likely to see an
ETF conversion of GBTC.
[627]
Okay.
[628]
That's all well and good.
[628]
So what are the risks here?
[630]
Well, the risk is inherent to
actually Bitcoin as a product,
[633]
so it could crash.
[634]
It's highly volatile.
[635]
So of course, you wanna make
sure that you don't YOLO in
[638]
and put all the cash you have available
[640]
into a product like this,
whether it's BITO or GBTC,
[643]
but the other risk with this
specific product is that,
[646]
let's say, more investors pile in
[648]
and you lose that discount,
[650]
I still don't consider that a negative.
[651]
However, it would just mean
that your potential upside,
[654]
if GBTC or when GBTC actually
converts into an ETF,
[659]
you just won't have as big of
a move in price appreciation.
[662]
So from that standpoint,
[664]
I don't see it as a real risk
[665]
in the sense that if
cryptocurrencies and Bitcoin tanks
[668]
in general,
[669]
it's gonna go down no matter what,
[670]
but with this specific product,
[672]
if you're comparing it to
BITO as a futures product
[675]
versus GBTC,
[676]
if you're a value-oriented investor
[678]
and you wanna hold
something for the long-term,
[680]
I think that the opportunity set here is
[683]
that you can purchase
it now at a 15% discount
[685]
to the actual Bitcoin it holds
[687]
and you have a calendar catalyst,
[690]
which means within six to
18 months is my rough guess,
[694]
that we would have some
sort of an approval of GBTC
[697]
as a traditional ETF.
[698]
And when that happens,
[700]
that discount that we're
discussing here, it should close,
[702]
and that share price should actually rise.
[705]
In case you've not seen my
prior videos on Bitcoin,
[707]
make sure to check out that playlist here.
[709]
I also put some notes in the show notes
[711]
about specifically GBTC,
[713]
some of its history,
(whooshing)
[714]
and just some general background
[715]
in case folks are curious
[716]
(whooshing)
to read about that.
[717]
Join me on the path to decoding
technology and innovation,
[720]
to grow your wealth on your journey
[722]
to financial independence.
[723]
Don't forget to like,
(whooshing)
[724]
share, subscribe,
(whooshing)
[725]
and hit that notification bell.
[727]
(bell ringing)
Until the next time.
[729]
(calm music)
Most Recent Videos:
You can go back to the homepage right here: Homepage