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Buying Bitcoin in a Trust – What You Should Know

16 November 2021 05:44, UTC
Denis Goncharenko

Bitcoin investment trusts allow investors to invest in Bitcoin indirectly, without going through crypto exchange platforms. It is usually a more convenient alternative for institutional investors to capitalize on the projected Bitcoin growth. Trust funds enable investors to achieve that goal by purchasing Bitcoin investment trust’s shares instead of tokens offered by crypto exchanges and other online trading websites.

Unlike crypto trading platforms such as https://bitcoin-storm.app/, allowing investors to own personal Bitcoin wallets, the trust fund institutions manage the assets on behalf of investors. Those institutions act as custodians, trading and storing the investors’ funds. Each Bitcoin Trust Fund share currently represents ownership of about 0.092 Bitcoin. That amount will gradually decline over time as a result of the fund’s management fees.

Although there are a handful of Bitcoin investment trusts that investors can buy shares from, you should know several things before jumping into the action. Here are the basics of buying Bitcoin through a trust fund.

The Cost of Owning a Bitcoin Investment Trust

Bitcoin investment funds are never for free. The service providers, such as Grayscale Investment Trust, charge an annual management fee worth 2% of the fund’s assets. The cost is relatively high, especially to small and medium investors, considering gold ETFs charge as low as 0.25% annually to invest in real gold kept in vaults.

It surprises Bitcoin storage costs more than the fee for keeping gold safe. However, experts predict the charges would decrease if competitors enter the market. Others would also argue the costs are marginal errors compared to the enormous daily Bitcoin price swings. Investors who earned returns of 1,557.2% in 2017 are probably not worried about the 2% annual management fee.

Many Bitcoin investment trust proponents insist buying the shares is a lot easier than purchasing Bitcoin tokens on online cryptocurrency exchanges. However, they warn that convenience always comes at a higher cost, which investors should be ready to pay.

The Key Options for Buying Bitcoin in a Trust

Although many Bitcoin investment trusts have begun coming up, three leading platforms currently allow investors to buy the shares conveniently. They include Grayscale Bitcoin Trust, Canadian Bitcoin Exchange-traded Funds, and Coinbase Global.

Grayscale Bitcoin Trust is a US-based company traded over-the-counter under the sign GBTC. It owns the underlying Bitcoin assets, selling the shares to investors. It currently boasts about $38 billion worth of assets under management. It operates almost like a small, illiquid ETF, often trading at a premium or discounting its investments. They levy an annual management fee of 2%. One of its unique advantages is that US investors can hold the trust in a tax-protected retirement account, leveraging Bitcoin’s long-term position instead of short-term price swings.

The Toronto Stock Exchange currently offers US investors up to four Bitcoin ETFs from which to choose. Still, investors must remember the exchange treats those funds as overseas investments that may require special permissions. The largest Canadian fund is Purpose Bitcoin ETF, with over $1 billion in assets under its management. Similar to Grayscale, it also has a record of replicating Bitcoin’s price movements.

The Coinbase Global IPO is also another option for buying Bitcoin trust. They had more than $100 billion market cap during their initiation in mid-April, although the value has declined by over 40% in recent months.

Bitcoin investment trusts have closed at relatively higher prices than the value of their underlying Bitcoin assets. Analysts speculate the share prices would even increase further based on the projected Bitcoin value growth. However, investors must be cautious and invest sparingly since Bitcoin trusts also bear some risks.