Is the Grayscale Bitcoin Trust ETF a Millionaire Maker?

Exchange-traded funds (ETFs), or groups of individual stocks trading under a single ticker symbol, are meant to simplify investing. A few ETFs can diversify your investments in minutes, versus spending gobs of time screening and selecting dozens of individual companies to trust your money with.

In cryptocurrency, the Grayscale Bitcoin Trust ETF (GBTC 0.57%) can take much of the work out of owning Bitcoin (BTC 0.27%).

But what’s the point of owning a Bitcoin ETF instead of just Bitcoin? The cryptocurrency has proved it can make investors millionaires. Can this ETF do the same?

Here is what you need to know.

What is the Grayscale Bitcoin Trust ETF?

On the surface, it’s a straightforward investment. The Grayscale Bitcoin Trust is an ETF that holds Bitcoin. Buying shares gives investors indirect exposure to the crypto’s price movements.

Why wouldn’t someone directly hold Bitcoin instead? Well, doing that can be trickier. For example, it puts the responsibility of security on the owner. You can hold the crypto on exchanges or in physical (cold) storage, but each has pros and cons.

Suppose you lose access to your wallet or the exchange you use faces trouble, like FTX, the disgraced cryptocurrency exchange. The Grayscale ETF uses cold storage (it’s kept in servers offline through a company called Coinbase Custody Trust) to secure the Bitcoin represented by its shares. So it’s a secure and convenient way to benefit from investing in the cryptocurrency without the onus of owning and managing it yourself.

A couple of factors affect the value of the Grayscale Bitcoin Trust. The fund charges a 1.5% annual fee for managing the crypto, which you wouldn’t have to pay if you managed your own instead. The ETF also might trade at a premium or discount to the underlying value of its Bitcoin at any given time.

Investors should consider how the ETF trades relative to Bitcoin’s price to decide whether they want to buy shares. You can do this by comparing the ETF’s share price to its net asset value per share.

Bitcoin’s staggering investment returns

A quick look at Bitcoin’s success over the years makes it obvious why investors would consider adding the Grayscale ETF to their portfolios. As an asset, the digital coin has handily outperformed the broader stock market for the past decade:

Bitcoin price data by YCharts.

The investment thesis in Bitcoin is straightforward: The supply of fiat currency is ever-expanding, far faster than that of Bitcoins. As the U.S. dollar loses value (through inflation), the price of the crypto has gone higher over time. The supply grows more slowly over time as halvings occur every four years or so, further limiting the supply in the face of increased demand by people wanting to invest in and use Bitcoin.

So the token’s price boils down to supply versus demand. The hope for investors is that demand will indefinitely increase as the supply rises at an ever-slowing pace.

Can the ETF make you a millionaire?

The million-dollar question is whether investors will pay for the convenience this ETF offers. What’s the cost? Quite a bit, actually.

You can see below that the ETF has handily underperformed Bitcoin itself over time. Those management fees turn out to be quite expensive in the long run.

GBTC data by YCharts.

But with that said, the fund has still far surpassed the broader stock market, making the Grayscale Bitcoin Trust ETF an obvious high-potential long-term investment that can absolutely still churn out millionaires if the cryptocurrency’s investment thesis continues to play out over the coming years.