Buy Better: Grayscale Bitcoin Trust vs. Osprey Bitcoin Trust
It’s been almost four months since I reviewed two of the most popular ways for investors to get their skin on the Bitcoin (CRYPTO: BTC) play through traditional brokerage houses. I’m not talking about Bitcoin miners, crypto exchanges, and the many other businesses that stand to benefit from wider adoption of digital currencies as investments or transaction setters.
Grayscale Bitcoin Trust (OTC: GBTC) and Osprey Bitcoin Trust (OTC: OBTC) are two US-listed trusts that only own Bitcoin. Grayscale Bitcoin Trust is much bigger, entering this new week with $ 24.3 billion in assets under management. Osprey’s entry hit the market in mid-February and currently manages nearly $ 104 million in assets. Let’s throw in the tires to see which one – if any – is worth buying right now.
Testimony of your affection
Comparing a pair of exchange traded funds often leads to one investment being pitted against the other in terms of management and performance, but these are passive investments concentrated in a single cryptocurrency. The most important sticking points in this debate should be fees and discounts on net asset value (or NAV).
When it comes to fees, Osprey Bitcoin Trust is the big winner. It charges an annual fee of 0.49%, which is less than a quarter of Grayscale’s 2%. These fees are taken over the course of the year from assets, so the actual Bitcoin per share held by investors in Grayscale Bitcoin Trust decreases four times faster than that of Osprey Bitcoin Trust.
If both funds were trading at net asset value, that would seem like a fairly easy decision. There are economies of scale that can benefit the larger gray scale. In terms of management Grayscale is a pioneer in crypto, but it’s not like Osprey is green in this space. It is backed by experts who have invested in Bitcoin since 2013, launching over 100 exchange-traded products to date.
However, the reason investors looking for crypto exposure will want to choose Grayscale Bitcoin Trust today is that it offers a lot more bang for your buck than the alternative. Grayscale Bitcoin Trust once traded at a high premium compared to its crypto reserve, but it has been trading largely at a reduced price since February. Shares in the trust may have closed last week at $ 30.91, but that was a 12% discount from the $ 35.06 in Bitcoin represented by each share.
Osprey Bitcoin Trust hit the market in February as the cryptocurrency craze raged. Towards the end of this month – when I initially pitted one against the other – it was trading at a 152% premium. In other words, investors were paying almost $ 40 per share for a trust that had just over $ 15 in crypto.
Math is smoother these days. As investor enthusiasm for Bitcoin waned, we saw Osprey’s trust premium drop sharply. It closed at $ 14 on Friday, just a 12% premium over its net asset value of $ 12.54.
Choosing Grayscale over Osprey at the end of February was the right choice. Bitcoin would continue to climb for a few weeks before correcting sharply since April, but the rebate of the former has helped it resist the sell off better than the latter with a ridiculous premium. Grayscale’s 28% drop at this time isn’t pleasant, but it’s a much better fate than the 65% drop for Osprey Bitcoin Trust investors.
I am no longer bearish on Osprey Bitcoin Trust. The world’s most valuable denomination exposure for in-vehicle cryptocurrency with just 0.49% annual fee is better than the 1.5% commission than most of the major platforms to buy direct from. tokens will charge you for the purchase. If the premium continues to fall, I may even turn bullish. It is obvious if it achieves a discount. However, at the moment Grayscale Bitcoin Trust with a 12% discount is the best buy. A 149 basis point difference in annual fees is huge, but it doesn’t equate to a roughly 2,400 basis point difference between the discounts and bonuses of the two vehicles. If you’re looking to invest in cryptocurrency – and want to go through your traditional stock broker – Grayscale Bitcoin Trust is a smart way to do so at its current discount.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.