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Here's Why Grayscale Bitcoin Trust Was Rising Monday

By Matthew Frankel, CFP® - Aug 17, 2020 at 3:59PM

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The digital-asset investment vehicle was sharply higher, despite a modest rise in bitcoin.

What happened

The stock market was nearly flat on Monday, with the Dow Jones Industrial Average in the red, and both the S&P 500 and Nasdaq Composite higher by less than 1% as of 3 p.m. EDT.

However, Grayscale Bitcoin Trust (GBTC 4.25%) is a standout, with shares higher by nearly 10% and reaching a fresh 52-week high.

Gold coin with bitcoin symbol.

Image source: Getty Images.

So what

The obvious reason that the Grayscale Bitcoin Trust was rising is that the price of bitcoin was higher. At about $12,300, bitcoin is now up by 70% in 2020. However, with a gain of less than 4% on the day, it doesn't explain the move all by itself.

In addition, Grayscale announced approval for two new investment trusts to be tied to digital currencies Bitcoin Cash and Litecoin. This adds to the bitcoin trust, as well as Grayscale's Ethereum and Ethereum Classic trusts, and could boost trading volume in the digital currency world in general.

Now what

Before you rush out and buy shares of the Grayscale Bitcoin Trust, it's important to be aware that it trades for quite a premium to the bitcoin it owns. Each share represents 0.00095812 bitcoin, which translates to an intrinsic value of $11.76 per share at the current value of the digital currency. Shares trade for a 24% premium to this value. Combined with the 2% management fee charged by Grayscale, would-be bitcoin investors are likely better off buying and holding bitcoin directly as opposed to investing through the stock market.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
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