Simplify Bitcoin Investing with Grayscale
Here’s the disclaimer: I’m not a financial advisor. I work in tech/finance so cryptocurrencies naturally interest me. I can’t even guess what you should do with your money, but I can share some educational content on how I would recommend a simple straightforward way for everyday investors to buy bitcoin. Also… no one paid me to write this and don’t consider my views representative of any company I work for.
Crypto investing’s biggest risk may not be in price action — but in digital custody. Between the risks of digital security at the crypto exchanges and personal level — as well as straight up goof ups possible with losing passwords and private keys, there’s unfortunately a lot of ways to lose money on crypto even if the prices shoot through the roof. There are many famous stories of thousands, millions, even billions in lost Bitcoin due to poor password management. A vigilant and technically savvy person can manage this well — but many adults are simply too exhausted and scared by day to day life to attempt it. I can hardly stress this enough, it’s possible to lose 100% of your investment in cryptocurrency by being sloppy and having your private keys to your crypto lost or stolen. It’s also 100% preventable when you take secure custodianship seriously.
Or perhaps if you are motivated and intellectually curious — you start investing in Bitcoin. Maybe you try something easy like buying Bitcoin on Cash App or even poke around Coinbase. But then you start getting headaches over capital gains taxes when thinking about a more serious position.
Good news is you can solve both of these difficulties. You can trade Bitcoin in a 401k or IRA using Grayscale funds. It works a bit differently than directly buying Bitcoin. You are actually buying shares of a trust that buys Bitcoin. A crypto-purist may refrain against this “Not your keys, not your Bitcoin” — but in this case you have three major benefits :
1). You fool-proof yourself against any security issues. You are dramatically less at risk of losing 100% of your investment because either someone hacked your accounts or you forgot a password. Grayscale is a time-tested, secure, and highly reputable custodian of many crypto assets. Grayscale would manage the private keys related the Bitcoin invested on your behalf. Your investment is secured with the same procedures as your other investments.
2). You can sell your Bitcoin with minimal tax. HODL’ing Bitcoin to the moon sounds like a wonderful idea — and it’s proven to work well over time — but then in your personal reflection you realize there are key price levels you might like to sell at. Short and long-term capital gains can end up eating away those gains.
3). Due to day to day market inefficiencies, you can even sometimes buy Bitcoin cheaper this way. Check Grayscale.co’s recent disclosures on their website and do some back of the envelope math to match the amount of bitcoin you “own” in the trust for the dollars you investing.
Say GBTC is trading at $46. Given each share trades at $46, this assumes GBTC sets a market price of $48,672 per Bitcoin (1/0.00094509 * $46). When the current price of BTC is higher than this, GBTC may become a better deal as it gives you more Bitcoin per dollar. But watch out — this could cut they other way and have you pay major market premium. Do your own research and run the numbers before buying/selling GBTC.
What are the potential issues with Grayscale Bitcoin Trust? You of course will lack the same utility you might enjoy by owning Bitcoin directly. Grayscale could even choose to either buy/sell Bitcoin held in the trust to cover their own expenses or in the interest of their broader clients. Nonetheless, I’d expect GBTC to try to manage a pretty consistent ratio of BTC owned per share. I would also check up on it periodically just to ensure it remains relatively price correlated to Bitcoin in a positive way.
Final thoughts. I think owning Bitcoin and cryptocurrencies directly is pretty awesome. Ultimately, I think its an essential life-skill of everyone’s personal finance future as we see blockchain work further to transform our financial system. However, there’s a learning curve to all of it that will take some more time to get the broader population accustomed to. Its good to meet people where there are already at in their investing, and Grayscale just happens to be the leading solution that most directly offers a way to invest in Bitcoin from a conventional brokerage.