Bitcoin, like the stock market itself, has been rallying after hitting lows during the coronavirus pandemic. The digital currency has just soared to fresh heights after shaking off a price correction. The move comes after GBTC stock sprinted past a buy point.
But is GBTC stock a buy right now? Let’s take a look at what Grayscale Bitcoin Trust (GBTC) is and how it’s performing technically.
Gold has traditionally been the asset class investors have fled to in times of uncertainty. There was hope among cryptocurrency enthusiasts that Bitcoin would serve as an alternative during the coronavirus crisis. But instead Bitcoin lagged. With speculative investments and gold prices hot, Bitcoin surged in late July and August before gains melted away again.
One hurdle is that investors have limited options to get exposure to the digital asset via the stock market. One possibility is Grayscale Bitcoin Trust, which owns and tracks Bitcoin.
More specifically, Grayscale Bitcoin Trust tracks the Bitcoin price based on the TradeBlock XBX Index. But while the trust closely mirrors the performance of Bitcoin, the GBTC stock price tends to over- or undershoot performance based on investor sentiment.
GBTC Stock: It’s Not A Stock
One key thing to remember when considering buying shares in Grayscale Bitcoin Trust is that it’s not a true common stock. Stocks are shares in a company, while GBTC shareholders own part of an open-ended grantor trust.
Grantor trusts are required to hold a fixed portfolio, rather than a variable one. Such trusts often hold physical commodities and currencies. In this case, GBTC is a trust that only holds Bitcoin. Bear in mind that the Investment Company Act of 1940 does not cover grantor trusts, so they provide none of those investor protections. They also do not qualify for regulation by the Commodity Futures Trading Commission.
However, grantor trusts are covered by the Securities Act of 1933 and the Securities Exchange Act of 1934, and must disclose regular financial information.
Grayscale Bitcoin Trust Technical Analysis
The GBTC stock price has generally moved in line with the price of Bitcoin. GBTC broke out in late July and hit a then 52-week high of 14.78 on Aug. 17 after falling as low as 5.01 on March 16. The breakout quickly failed, which led to the stock falling beneath its 50-day line and building a new base.
It broke out of this new cup-without-handle base on Oct. 22, and is now well clear of its profit-taking zone. The ideal entry point was 14.88. GBTC stock hit a all-time high of 44 on January 6. This came just a day after it finally climbed above the 38.75 mark it reached at the height of Bitcoin-mania in December 2017. It has gained just as Bitcoin itself has been hitting new highs.
The relative strength line has been looking strong since mid-October. It’s sharp upward spike came after choppy performance throughout much of 2020. The RS line is also now sitting at all-time highs. This gauge reflects a stock’s performance vs. the S&P 500.
The price of Bitcoin itself fluctuates wildly, and its performance in 2020 underlines the opportunity and risks of the cryptocurrency.
It is now sitting just below a record high of 36,382.87, which it reached Jan. 6. Bitcoin has been making steady progress amidst broader economic volatility since slipping to just above the 10,000 mark on Sept. 8.
But looking further back underlines how risky the asset is. It reached as high as $10,371.30 per Bitcoin on Feb. 12, before undergoing a massive decline. It plunged to a low of 4,857.10 on March 11. Bitcoin then tried to pass the $10,000 mark, finally managing to break through on July 26. It continued to push higher, but after reaching $12,399.61 on Aug. 17 it tumbled, though it more than regained its losses amidst the current rally.
Money Flows In To GBTC Stock
Grayscale Bitcoin Trust said in its latest report it experienced experienced $719.3 million in inflows in the third quarter. In addition is has seen assets under management swell from $1.9 billion to $4.7 billion so far in 2020.
According to the Trust, institutional investors made up the bulk of its holders, with 84% of the total. The number of overseas investors has also been increasing rising to to 60%, compared with 55% over the trailing 12 months.
A late June Coin Telegraph report said the trust is not slowing its investment. It estimated Grayscale will own 3.4% of all Bitcoin by January if it keeps buying at the current pace.
Legendary Investor Touts Bitcoin
One big name backing Bitcoin is hedge fund billionaire Paul Tudor Jones, who is most famous for raking it in during the Black Monday stock market crash of 1987. The Tudor Investment Corporation founder believes the Bitcoin rally is still in the first “first inning.” He sees the digital currency as the the best inflation hedge.
He cited the Federal Reserve’s unprecedented quantitative easing as a reason for investors to look protection in case of inflation.
“The reason I recommended bitcoin is because it was one of the menu of inflation trades, like gold, like TIPS breakevens, like copper, like being long yield curve; and I came to the conclusion that bitcoin was going to be the best inflation trade,” he told CNBC.
A number of heavy hitters have been snapping up Bitcoin of late. Business intelligence firm MicroStrategy (MSTR) announced Sep.15 it has bought $250 million in Bitcoin. Square (SQ) disclosed in early October a more modest $50 million investment in the bitcoin market. As bigger buyers have bought more Bitcoin, the supply has been drying up. This pushes up its price.
PayPal Does This
Another factor buoying Bitcoin prices is the fact PayPal (PYPL) entered the cryptocurrency market in October. Customers can now buy and sell Bitcoin and other virtual currencies using their PayPal accounts.
The likes of Square’s Cash app and Revolut had already offered such a service, but are much smaller than PayPal.
Virtual coins are also to be used to make purchases from the 26 million sellers which accept PayPal. The payments firm has been rolling out buying options in the U.S. and is aiming to carry out a full rollout early in 2021.
When purchases are made, PayPal will convert the cryptocurrency into the relevant national currency. This means merchants will never actually be paid in crypto coins.
Is Bitcoin Digital Gold?
Bitcoin is sometimes called “digital gold,” enhancing the risk-adjusted returns of traditional investment portfolios.
One key difference between gold and Bitcoin is the former is actually a physical asset, and has a number of uses besides being a commodity of exchange. For example, almost 80% of gold consumed each years is made into jewelry. It is also a highly efficient conductor that is able to carry tiny electrical charges.
Gold is often a hedge against inflation or other economic or market uncertainty. Gold prices have hit record highs, briefly hitting $2,000 an ounce recently. Silver prices also have spiked to multiyear highs. They’ve retreated from early August peaks.
Meanwhile, Bitcoin and related instruments like GBTC have not been a store of value during the coronavirus crisis.
Is Owning Grayscale Bitcoin Trust The Same As Owning Bitcoin?
While GBTC is a trust that only holds Bitcoin, the GBTC stock price does not exactly match the underlying Bitcoin price. Depending on investor sentiment, its shares can trade at a premium to its assets, or at a discount to its total Bitcoin holdings.
However it is the fastest way stock market investors can get cryptocurrency exposure without actually buying their own Bitcoin. This is because regulators have not approved a Bitcoin ETF. And buying Bitcoin directly requires setting up and funding a separate account, often paying high trading fees.
Is GBTC A Good Investment?
Grayscale Bitcoin Trust, like the underlying Bitcoin, is prone to wild swings. Ultimately, it’s a bet on Bitcoin, which is a speculative asset more than a real currency. However its excellent recent performance and increasing institutional investment makes it an asset worth watching.
GBTC stock posted gains far in excess of the S&P 500’s in 2020. However it is currently extended above a buy zone after an October breakout, which came hot on the heels of another failed breakout. Those looking to invest in the cryptocurrency would be best served waiting for a new buy point to emerge. Given the asset’s history of wild declines, investing at the moment could result in heavy losses.
Bottom line: GBTC is not a good buy right now.
Most investors would be better served studying the stock market, and compiling a watchlist of profitable companies setting up in proper bases, when looking for stocks to buy.
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