For investors who don't want to deal with opening a cryptocurrency wallet and buying bitcoin directly, there has been the Grayscale Bitcoin Trust (GBTC). It's not a perfect vehicle for bitcoin ownership, but without a bitcoin ETF available here in the United States (and who knows if one will ever get the SEC's stamp of approval), it's been about the best retail investors could do.
The big drawback of GBTC is that it trades over-the-counter, so its market price can deviate from the underlying value of the trust's assets. In essence, it trades like a closed-end fund. Throughout its life, GBTC has traded at a premium to the value of bitcoin and right now is no different. Today, it trades at about a 20% premium, so buyers are paying $1.20 for every $1 worth of bitcoin.
That's not even a high number when you consider GBTC's history. Just a couple years ago, the trust traded at more than a 100% premium.
Cost is also an issue. GBTC charges a 2% annual fee, which, to date, hasn't really deterred investors as the trust now contains more than $23 billion in assets.
But now, GBTC is about to get a direct competitor and it's going to come in much cheaper.
The Osprey REX Bitcoin Trust (OBTC) is set to start trading over-the-counter sometime next week and could result in a major shift in the market for bitcoin access.
To be clear, this trust isn't new. It actually debuted in 2019, but at the time was only available via private placement to accredited investors. In November 2020, Osprey announced that it was reopening the trust for private placement and reducing the management fee to just 0.49%, one-quarter that of GBTC. Along with that announcement, Osprey indicated its application to list the trust on the OTCQX market, something that looks like it will happen over the next several trading days.
Implications Of The OBTC Launch
OBTC's debut on the OTC indicates that the fee war has arrived in the cryptocurrency market.
The main question is whether or not OBTC, as the cheaper bitcoin alternative, is able to draw assets away from GBTC. We've seen in the ETF market that going ultra-cheap doesn't always translate into success. The 0% expense ratio funds from SoFi and BNY Mellon have been met with only a tepid response and limited assets. Salt Financial's launch of an ETF with a -0.05% expense was mostly a failure and has since been acquired by Pacer (who immediately raised the expense ratio to 0.69%).
With $23 billion in assets and a reputation as the spot for retail bitcoin access, Osprey's goal won't be easy to achieve, but I wouldn't be surprised if it quickly blows up to at least a few billion in assets relatively quickly.
The other question is what happens to the trading premium on these bitcoin trusts? Does the competition between two funds mean that the premiums will begin disappearing making GBTC a good short candidate? The launch of a bitcoin ETF would very likely cause any premium on GBTC and OBTC to quickly shrink to zero, but it's unclear what happens with two trusts trading OTC will do.
Either way, this is good news for bitcoin investors. With the price of bitcoin fluctuating wildly, a 1.5% difference in cost probably feels like a non-factor, but I'm a fan of getting any cost advantage you can get. If you can buy bitcoin access for either 2% or 0.49%, guess which one I'm choosing.
Cryptocurrencies are also getting a lot of attention right now thanks to bitcoin's recent rise to $40,000. Not considering the price gains of bitcoin as strictly a speculative asset for a moment, crypto and blockchain are starting to build some momentum as more of a mainstream technology. OBTC could be debuting just at the right time and getting ahead of a time of greater global acceptance.