Is GBTC Stock A Good Buy As Bitcoin Plunges Amid FTX Meltdown Fallout? Investor’s Business Daily |

Bitcoin has been having a tough time of late. Values tumbled from above the $65,000 mark to around the $17,000 level amid the FTX bankruptcy debacle. So, is crypto stock market play Grayscale Bitcoin Trust (GBTC) a good buy now? Let’s examine GBTC stock to find out.

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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 a similar alternative during the coronavirus crisis. But with financial reality now hitting home, and the broader stock market itself currently in the grip of a correction, recent times have been tough for the digital currency.

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 Bitcoin 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.

ETF Bid Fails (For Now)

Back in June, the SEC rejected Grayscale’s attempt to turn the trust into an exchange-traded fund (ETF).

Regulators say investors are vulnerable to fraud and manipulation as the SEC does not have oversight over cryptocurrency-trading venues not registered as exchanges in the U.S. This is because they have no insight where Bitcoins are coming from.

The company is suing the SEC. The firm’s CEO Michael Sonnenshein said the SEC is failing to apply consistent treatment to Bitcoin investment vehicles.

The Grayscale Bitcoin Trust is currently trading for a substantial discount on its underlying Bitcoin holdings.

Grayscale claims that converting GBTC into an ETF will likely help bring its share price to trade in line with its underlying value.

FTX Crisis: Bitcoin Hit Amid Bankruptcy, Sam Bankman-Fried Resignation

Distressed cryptocurrency exchange FTX officially filed for bankruptcy early Nov. 11, putting further stress on Bitcoin prices. CEO Sam Bankman-Fried has also resigned.

The company has a massive hole in its balance sheet and sister trading firm Alameda Research currently owes the exchange around $10 billion.

John J. Ray III has been appointed to serve as chief executive officer, while Bankman-Fried will remain on in an advisory role to assist with the transition. Ray III previously served as chairman for Enron and oversaw its liquidation after the energy company’s bankruptcy and accounting scandals two decades ago.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in the release. “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process.”

It comes after reports emerged that the exchange’s FTT token made up a majority of Alameda Research’s balance sheet. Binance previously announced the liquidation of its FTT holdings, causing users to rush to withdraw $6 billion from FTX within 72 hours.

Binance signed a nonbinding letter of intent to buy FTX as cryptocurrency prices crashed. In the end Binance decided to pass on the deal after reviewing the company’s internal data and loan commitments.

Meanwhile, FTX faces regulatory probes from the SEC and CTFC over its handling of client funds and lending practices.

Amid the fallout, then-CEO Bankman-Fried, who has become a notorious figure, offered an apology on Twitter. “I’m sorry. That’s the biggest thing. I (screwed) up, and should have done better,” he said.

New CEO Ray III has since slated the company, saying that “never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”

Grayscale has said its products “continue to operate business as usual, and recent events have had no impact on product or operations.”

Grayscale Bitcoin Trust Technical Analysis

The GBTC stock price generally moves in line with the price of Bitcoin, though it is now trading for a substantial discount.

GBTC has been given a spanking amid the digital currency’s latest woes, falling more than 76% so far this year. This means it is being well outpaced by the S&P 500 despite the index falling more than 17% so far in 2022.

GBTC’s last breakout came in October 2020 and it has now given back all its gains and more from a 14.88 entry, according to MarketSmith analysis.

The relative strength line fell sharply since the start of April. A recent spell of sideways movement has given way to another dramatic downward move. This gauge reflects a stock’s performance vs. the S&P 500.

It is in the bottom 6% of stocks in terms of price performance over the past 12 months.

The price of Bitcoin itself fluctuates wildly, and its performance underlines the opportunity and risks of the cryptocurrency.

Bitcoin hit a record high around the $65,000 mark in early November 2021, according to CoinDesk. But it has been plunging as investors retreat from risky assets. Recent negative news surrounding the cryptocurrency space has seen it fall around the $17,000 level, though it is off lows.

The fact that Bitcoin frequently spikes before suffering brutal reversals underscores the volatility of the digital currency. Those who got in at the wrong time are nursing painful losses.

GBTC’s Big Bitcoin Hoard

In its annual report, GBTC said its assets increased to $20.2 billion as of Dec. 31, 2021.

According to GBTC, its total assets under management, as of December, were $10.8 billion, well off highs. It also states that the fund has fallen by nearly 66% over the past 12 months.

GBTC is trading at a discount to the underlying asset. However, this could be due to the market trying to price in the risks associated with cryptocurrencies at the moment.

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 year 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 failed to act as a store of value since the coronavirus crisis began.

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, the trust 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 — and often paying high trading fees.

Is GBTC Stock A Good Buy?

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.

GBTC stock is badly lagging the S&P 500 this year. The benchmark index is hardly a stellar performer itself but has suffered a less painful drawdown. Bitcoin bulls may see some appeal, but it takes a lot of stomach to hold through the massive volatility. Many investors are already massively underwater. The recent negativity surrounding the space due to the collapse of FTX is another headwind.

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.

To find the best stocks to buy or watch, check out IBD Stock Lists such as the IBD Leaderboard.

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