Grayscale was founded as the sponsor of the Bitcoin Investment Trust (BIT), the first publicly traded securities to derive value solely from the price of bitcoin. Public trading began in May 2015 under the symbol GBTC. The trust was founded in 2013 as a private vehicle whose shares represent approximately 0.1 bitcoin. We sat down with BIT founder Barry Silbert and BIT Director of Business Development Michael Sonnenshein about their plans for GBTC and the nexus between Wall Street and Bitcoin.
Modern Trader: Shed some light on The Bitcoin Investment Trust and how it gained a public listing.
Barry Silbert: [BIT] is an open-ended investment vehicle that passively holds bitcoin and derives its value solely from the price of bitcoin. Eligible accredited investors can purchase restricted shares of the fund at the daily NAV price. Once an investor has held for at least a year, they can elect to resell their shares. Eligible shares held longer than one year are what created the initial secondary market liquidity for GBTC and continue to do so. Once BIT shares enter the public market, they can be bought and sold like any other security.
MT: What are the advantages of creating bitcoin exposure through the trust versus directly?
Michael Sonnenshein: Whether an investor buys shares of BIT at the NAV, through the ongoing private placement or through the public markets under GBTC, it’s the easiest way to gain exposure to bitcoin through a titled security. Investors can avoid a lot of hurdles, from basic things like knowing how to buy bitcoin to choosing an exchange and obtaining secure storage. These are some of the problems that have created gaps between bitcoin and investors, and BIT solves them. Plus, the Trust is a regulated, transparent structure accessible via regular brokerage and retirement accounts.
MT: There has been a premium on GBTC’s price relative to bitcoin since it launched. Why?
MS: We expect the prices to converge over time as liquidity increases. We were excited to be first to market with a BTC investment vehicle, so pricing is still driven by the novelty aspect. Plus, there is a scarcity value—GBTC’s liquidity depends on the number of existing BIT shareholders electing to sell after the one-year lockup, as well as secondary market volume. Volume [is] increasing, and we have roughly 10 institutional market makers in GBTC each trading day.
MT: Talk about all the attention on the blockchain.BS: Seeing all these global financial institutions and executives getting publicly involved and sharing their initiatives is very encouraging. They’re all putting their reputations on the line, and it has helped shift things like media coverage from consistently negative to generally positive. It is a far cry from two years ago. When you step back and look at all the ways this technology will be embraced, the potential is simply extraordinary.
MT: The price of bitcoin fell sharply last year and has been essentially flat for months. What are your thoughts about the long-term price direction?
BS: Since the bitcoin ecosystem is in its infancy, the outcome potential can be viewed as binary. Either it wins, and wins big, or it dies. But all the interest in blockchain applications and VC investment is making a negative outcome less likely. Plus, it underscores the chance that eventually, some of the largest holders of bitcoin are actually global financial institutions, because if we end up in world where payment rails, custody systems, clearance and transfer mechanisms, etc., all use the blockchain, they’ll need it. And if that happens, bitcoin’s velocity and monetary base will expand exponentially in order to accommodate additional users and uses.
MS: In the meantime, bitcoin is a new inflation hedge, store of value and burgeoning technology investment all wrapped into one. It is reasonable that investors will increasingly consider it for a slice of their asset allocation. Imagine if only a small fraction of the world’s total investment in gold—which, despite the clichés, does share some attributes with bitcoin—heads in this direction. The numbers get pretty interesting very quickly.
MT: You were the first publicly traded bitcoin investment vehicle, but you won’t be the last. How do you view the advent of additional alternatives?
MS: The success of GBTC has encouraged others to head in the same direction, both here [and abroad]. Ultimately, it’s a good thing, because competitive products are positive for the bitcoin ecosystem. It’s still a sector where a rising tide can lift all boats.