Buying and storing Bitcoin used to be a confusing process for a first timer. With its recent surge in popularity since 2017, it has become much easier through new digital wallets and platforms like PayPal who recently started to accept it.
However, did you know that you can have exposure to Bitcoin without even owning it?
If you believe Bitcoin’s limited supply, non-sovereign, immutable, decentralized properties are prime for growth then you may want to consider buying stock in a Bitcoin fund. The best part is you can purchase it in a tax free account and enjoy all of Bitcoins juicy gains.
You may be thinking, ‘why would someone buy stock in a Bitcoin fund over just buying Bitcoin itself?’. Well, there are a few reasons:
Not interested in being a bitcoin user
Avoid hassles of storing it safely
Just want to speculate on price
Purchase stock in a tax free account
Want to own both
It is important to consider two major drawbacks to buying stock in a Bitcoin fund. These include the premium you have to pay compared to buying actual Bitcoin and not owning the real asset.
The two main Bitcoin funds are Grayscale Bitcoin Trust which uses the ticker symbol GBTC and 3iQ which uses the ticker symbol QBTC. Both offer investors exposure to Bitcoin as the prices of both stocks correlate to Bitcoins price closely.
As you can see the in chart, both tickers move with the price of Bitcoin.
Personally, I like QBTC because it is offered on a major exchange (TSX) and I don’t have to buy it on the OTC market.
As of today, there are 8,129,532 units of QBTC and 886.37 per Bitcoin. 3iQ has incorporated a 1.95% management fee for operating the fund. Investors track two prices when buying QBTC, the Net Asset Value and the Market Price. The difference between these two is the premium.
For example, at the end of the trading day on November 6, 2020, the NAVPU (Net Asset Value per Unit) was $17.49. This means that if you took the price of Bitcoin and divided it by the amount of units per Bitcoin (886.37 in this case) the result would be the Net Asset Value. On November 6, the Market Price was $21.56. This is what the stock trades for in the open market. The $4.07 difference is the premium you’re paying to own the stock.
Many investors don’t like the premium, however if you’re purchasing the stock in a tax free account then it may be worth it. It is important to know that the premium is constantly changing based on supply and demand of the fund. Also, Bitcoin trades 24/7 while QBTC and GBTC are limited to the hours of the stock market. This can cause many short-term price fluctuations at the opening bell.
I hope this gives you some clarity on some other options if you believe in the growth trajectory of Bitcoin. Please note that none of this is investment advice. I’m just a regular dude and not a financial advisor. Join us tomorrow as I’ll start covering some Bitcoin on-chain metrics.
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