Why you should buy bitcoin and not GBTC

Retail investors have been gaining exposure to bitcoin through the Grayscale Bitcoin Trust (GBTC). Finding it bizarre that despite the existence of avenues for buying bitcoin directly, investors were choosing to buy GBTC which trades at a 25% premium to bitcoin, I decided to investigate further.

The conclusion I arrive at is straightforward:

GBTC enriches institutional investors at the cost of retail investors and it is advisable to sell your GBTC while the premium still exists and buy actual bitcoin with the proceeds.

How does GBTC work?

Let me start with an over-simplistic explanation.

Accredited Investors (wealthy people) by depositing their bitcoin with the Trust can participate in a private placement and buy equal value of new GBTC shares. After a lock-in period of 6 months, they can sell their GBTC shares in the stock market. Historically GBTC has almost always traded at a premium. At the current 25% premium, these investors would have made a profit of 25% in 6 months. This option is not available to retail investors.

=> In other words, rich people have the option of buying bitcoin at par and selling it at a premium while poor retail investors must buy at a premium.