The Grayscale Bitcoin Trust (GBTC 0.47%) has become a regular in headlines over the last few weeks. The Trust recently hit a new record low discount compared to the price of Bitcoin (BTC 1.68%) as a result of contagion stemming from one of the largest crypto exchanges, FTX, declaring bankruptcy. 

With GBTC trading at a discount, investors might be looking at that as an opportunity. Famous investor Cathie Wood did. Her firm, Ark Invest, recently bought another $1.4 million to bring its total number of shares up to a whopping 6.357 million shares. But before deciding if you should follow Wood's investing strategy, it can be helpful to understand just how the Trust works and how it differs from owning Bitcoin itself.

The Grayscale Bitcoin Trust was created in 2013 and is designed for investors who want exposure to Bitcoin without having to actually own the asset. Investors buy shares of the Trust on the stock market, and Grayscale holds the actual Bitcoin. Knowing that the Grayscale Bitcoin Trust owns the Bitcoin is important, but to truly understand why the Trust is trading at a discount, you need to understand the dichotomy between a trust and an exchange-traded fund (ETF). 

The Grayscale Bitcoin Trust is currently valued at around $10.3 billion and owns 643,572 Bitcoins. Since it is a trust (and not an ETF), Grayscale cannot actively manage the value of its Bitcoin relative to the number of shares bought or sold by investors. When investors buy or sell their shares of the Trust, Grayscale doesn't immediately turn around and buy or sell Bitcoin. For the most part, Grayscale hopes that the free market values shares of the Trust relatively close to the value of the Bitcoin it owns. However, that has recently failed.

Since the beginning of the year, the Grayscale Bitcoin Trust has been trading at a discount as more investors have redeemed their shares, and Grayscale has still held roughly the same number of Bitcoin. However, for most of its history, GBTC traded at a premium, meaning the value per share was worth more than the value of Bitcoin held by Grayscale due to increased desire by investors to gain exposure to Bitcoin. If the Trust were an ETF, the price would more closely follow the value of Bitcoin, thus closing these gaps and bringing a balance to the price of the shares and the value of Bitcoin on a more consistent basis. 

Should you follow Wood's lead?

Currently, the market price per share of the Trust sits at just below $9. If there was a true balance, the price per share should be around $15. 

You might be thinking this provides a lucrative opportunity. If that gap is closed, investors would be able to make a near-40% profit per share in addition to the possibility that the value of Bitcoin could increase in the future as well. 

This is probably a part of Wood's reason for buying more shares of the Trust recently. She and her team might see the discount as just another reason to buy and potentially increase their profits, but no one truly knows. 

Their reasoning could also be related to the possibility that the Trust might be converted to an ETF in the future. So far, Grayscale's efforts to convert to an ETF have been squashed by the Security and Commission Exchange (SEC). Optimists believe that it's likely only a matter of time before Grayscale gets this approval as investor demand for exposure to Bitcoin increases. Should the SEC give Grayscale the green light to become an ETF, that price gap should subsequently close. 

If you are looking for exposure to Bitcoin, the best way to do that would be to buy Bitcoin itself. In doing so, you have full control over your Bitcoin and can do with it as you please. However, if you are looking to take on some slight additional risk for the possibility of an added 40% upside, GBTC might be worth considering.