Summary Bitcoin's valuation has significantly increased as the market has gone from hated to beloved, and with it, the relative value has decreased. GBTC, without a discount to NAV to take advantage of, and higher expense ratios than alternatives, is simply unattractive. Tax-wise, GBTC remains quite okay, but is likely to see decreasing liquidity as outflows continue to more competitive options. I believe Bitcoin is relatively fairly to fully valued at this stage, and after a 600%+ run-up in GBTC, it'd be wise to trim positions, take profits, and redistribute to other asset classes and funds. My last article on Grayscale's Bitcoin Trust ETF ( GBTC ) was published nearly two years ago now, and we used to cover the discount to NAV, saying we'd switch away from this fund/ETF and into alternatives given the discount to NAV closing, with the caveat that we'd rate the fund a buy once again if GBTC hit a 40-42%+ discount to NAV. This occurred in the following month, and we switched our ProShares Bitcoin ETF ( BITO ) holdings back into GBTC. Since then, the stock has moved 600%+, after another good opportunity to trade the discount to NAV and a clear shift in the chance of approval followed by a swift approval of the fund's conversion to an ETF - closing the discount to NAV gap we enjoyed for so long. Coming up on 2025 it's now been about a year since the majority of the discount to NAV has been closed, so it's important to revisit this position and see if we should keep it around, switch it out, or exit our exposure entirely. Is Grayscale's Bitcoin ETF still one of the best vehicles for exposure into the crypto market? Let's see. The Bitcoin Component As Bitcoin ( BTC-USD ) itself is up drastically since the last article (300%+), and just broadly in recent history, I believe it's important to address the valuation of the asset generally before we get into the specifics about GBTC as an investment vehicle. Bitcoin is no longer in a bear market and hated, it's moved from one of the most hated sectors to one of the most beloved - among all but those who had no position. Returns have been phenomenal - truly, especially for us, who got back in at the lows. However, the future from here is far more uncertain - the relative value of Bitcoin just isn't as great as it once was, the risk reward dynamics of the market have changed, and this is one of the factors prompting this downgrade to an avoid/liquidate (sell) rating. Obviously, if bitcoin continues to rise, GBTC will continue to perform quite well as well. However, it's important to acknowledge we're no longer in the phase of the market we were in 2022. GBTC vs Alternatives With that being said, let's discuss GBTC as an investment vehicle TODAY vs the alternatives on the market, as before we were stuck with just a closed-end fund that traded at a heavy discount, and didn't track bitcoin's performance very well, and a bitcoin futures ETF ('BITO') that tracked it a bit better but fundamentally was not bitcoin and had structural issues as well. That's all changed now that GBTC was allowed to convert from a closed-end fund to an ETF, and numerous other bitcoin ETFs were approved. The market has matured and has become much more efficient. Data by YCharts This is evident by the chart above - which shows the total return (adjusted for dividends in the case of $BITO) for the last few months. As you can see, all the bitcoin funds/ETFs are beginning to track bitcoin very accurately now that the initial major inflows/outflows have occurred and discount/premiums to NAV have closed across all funds. With that being said, the performance shown above is not necessarily how it looks. GBTC vs BITO The worst performer above was ProShares Bitcoin ETF, which may look to have only underperformed by a hair relative to the other bitcoin ETFs. However, this is NOT accounting for taxes. That's because the above chart was based on the stock's total return, and BITO, unlike spot bitcoin ETFs that hold actual bitcoin, they still hold bitcoin futures. ProShares Bitcoin ETF (BITO) holdings (Proshares Website) Instead, BITO mirrors bitcoins price action via futures, which on the surface isn't actually an issue - I didn't mind it for a long time, however due to this, and some regulations, they're forced to pay out dividends (according to ProShares) to account for the capital gains the fund accrues, which means less compounding and, for most people, higher taxes. Combine this with BITO's expense ratio of 0.95% annually, and it's not a better alternative to GBTC in my view (due to taxes), unless of course someone wants to play with options on bitcoin - but in that case, I'd prefer to just go straight to the futures as the stock has a certain level of uncertainty regarding future dividend payment amounts, and thus how they'll affect price. GBTC vs IBIT The other bitcoin ETF that interests me and is worth considering instead of GBTC would be iShares Bitcoin Trust ETF ( IBIT ), as it currently has the lowest expense ratio (0.12%) in the sector and the highest AUM. Conveniently, it has also performed the best in the last few months, albeit but a slim margin. IBIT holds actual bitcoin - spot bitcoin, with the same custodian as Grayscale has (Coinbase) so you're really comparing apples to apples here and there's not much more to talk about than their expense ratios: For Grayscale's Bitcoin ETF, it's a blistering 1.5% annually, and for iShares Bitcoin Trust ETF, it's a comfortable 0.12% annually, and really that's all there is to be said about it. Do you want to pay 10x in management fees for essentially exactly the same product? I don't, and as a result, to me, if someone wants to buy a Bitcoin ETF, it'd make sense to just opt for IBIT from this point forward. This is especially true as the SEC greenlit IBIT for options approval back in September , and with it having the biggest AUM and lowest fees, it'll have the best options liquidity moving forward once the options begin to be traded. It's simply the best ETF for spot bitcoin exposure - or, in my opinion, bitcoin exposure period. Where does this leave us? This might make you think I'm saying to flee GBTC for greener pastures such as IBIT, however there are some important considerations before doing so - namely taxes. If you've held your GBTC for If you've held your GBTC for >1 year and would be subject to long-term capital gains, you still have to ask yourself how much are you up? From the looks of it, you're likely sitting up over 160% on the position, unless you bought it pre-2023. Does it really make sense to sell it and convert it to IBIT and pay taxes on the gains today? Well, that's something only you can answer - and it's a tough question to answer, but moving forward there is one thing that's quite certain in my view, and that's that any extra DCAing or additions should likely go into IBIT instead of into GBTC. Rating & Risks to Consider Before closing out the article, I'd like to clarify some risks to consider as well as clarify my rating for the GBTC moving forward. I'd like to restate once again that there are potential tax consequences in swapping GBTC out for IBIT that would make it a bad choice for you personally - please do not follow what we are doing, we have different circumstances, risk tolerance, and likely tax positioning than you do. With that being said, we'd rate GBTC at a sell relative to Bitcoin given the fact that there's simply better ETFs with lower expense ratios on the market now, and given that we believe Bitcoin is quite fairly to fully valued at this moment in our view we'd rate it relative to dollars or other equities as a modest sell, meaning we'd trim any position we have or liquidate it depending on other market opportunities. We'd change our rating of GBTC to a hold if the fund adjusts their fees downward below a 0.3% expense ratio - which is in the middle to lower bracket of expense ratios for Bitcoin funds currently.
