MSTR vs. GBTC Compared: Which is Best in July 2024?
This article compares MSTR and GBTC, offering insights for investors by examining their features, benefits, performance, fees, and drawbacks, focusing on their role in Bitcoin investment strategies in July of 2024.
MicroStrategy (MSTR) uses Bitcoin as its primary reserve asset, providing potential for significant appreciation.
Diversified Operations
With its enterprise software operations and diversified investment approach, MSTR offers a more stable investment profile than the Grayscale Bitcoin Fund (GBTC), which focuses solely on Bitcoin’s price fluctuations.
Substantial Bitcoin Holdings
MicroStrategy is a trailblazer among publicly traded companies for adopting Bitcoin as its main treasury asset.
This substantial investment in Bitcoin positions it as a leader in the corporate crypto space.
Investment Proxy
Indirect Bitcoin Exposure
MSTR offers a proxy for investors seeking Bitcoin exposure without directly buying cryptocurrency.
Grayscale Bitcoin Trust (GBTC)
Key Features
Largest Bitcoin ETF
GBTC, the world’s largest Bitcoin ETF, allows investors to buy into Bitcoin as a security, avoiding the complexities of direct purchase, storage, and safekeeping.
With $22.7 billion in assets under management (AUM), it charges investors a 1.50% annual fee.
High Trading Volume
GBTC experiences a daily trading volume of over 26 million shares, providing substantial liquidity for investors.
Exposure to Bitcoin
Price Movements
GBTC offers direct exposure to Bitcoin’s price movements, making it an attractive option for investors seeking to participate in the cryptocurrency market.
A New Perspective
Alternative Investment Strategies
Despite GBTC’s appeal, alternative strategies should be considered, offering better value and diversified exposure.
What if I told you that neither MSTR nor GBTC is your best bet?
MicroStrategy (MSTR): An Overview
Company Background
Business Transformation
MicroStrategy is a prominent company that initially focused on business intelligence, mobile software, and cloud-based services.
It has pivoted to Bitcoin-only investments by adding Bitcoin to its corporate balance sheet as the primary reserve asset. Learn more about this strategic move here.
Unique Investment Structure
Bitcoin-Only Investment
MSTR is a software company listed on NASDAQ with a direct Bitcoin-only investment strategy. As explained in this resource, Bitcoin is its primary treasury asset.
Investment Focus
Bitcoin as Primary Asset
MSTR’s primary investment focus is Bitcoin, held in its corporate treasury. This reflects the company’s strong belief in the long-term growth potential of digital currency. Read more about this approach here.
Fee Structure
Public Company Model
As a public company, MSTR doesn’t charge typical investment fees like management or performance charges.
However, investors should consider the stock price, exchange trading fees, and any premium or discount on the stock compared to its Bitcoin holdings.
Performance
Volatility and Link to Bitcoin
MSTR’s stock price is closely tied to Bitcoin’s price movements, resulting in significant fluctuations.
Performance should be assessed considering both the software business and its Bitcoin investments.
In summary
MicroStrategy’s strategic shift toward a Bitcoin-focused investment model provides a unique blend of a traditional software company and a cryptocurrency investment vehicle.
MSTR’s stock price is closely linked to Bitcoin’s volatile price movements, leading to significant fluctuations. Its performance should be assessed considering both its software business and Bitcoin investments.
The Grayscale Bitcoin Trust offers a way for investors to gain exposure to Bitcoin’s price movements without directly managing the challenges of buying, storing, or safekeeping Bitcoin.
Trust Structure
GBTC is a trust that trades over the counter (OTC), offering less liquidity compared to stocks in a publicly traded company.
Investment Focus
Direct Bitcoin Holdings
Similar to MicroStrategy, GBTC holds actual Bitcoin, providing more direct exposure to Bitcoin’s price movements. Learn more about its comparative approach here.
Fee Structure
Highest Annual Fee
GBTC has the highest annual fee of all 11 approved spot Bitcoin ETFs. Find out more about the competition among Bitcoin ETFs here.
Performance
Premium or Discount
GBTC’s price often deviates from the underlying Bitcoin price, frequently trading at a premium or discount.
In summary, Grayscale Bitcoin Trust provides a conventional way to invest in Bitcoin, offering direct exposure through a trust structure. However, investors should consider the liquidity, fees, and price fluctuations before investing.
Bitcoin ETF fee information is updated daily. For the latest updates, click here.
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MSTR Pros and Cons
Pros
Direct Exposure to Bitcoin = Increase in MSTR Stock Price
MSTR often mirrors Bitcoin’s market performance due to its substantial investment in the cryptocurrency. When Bitcoin’s value increases, so does the value of MicroStrategy’s holdings, positively affecting MSTR’s stock price.
Since MSTR first invested in Bitcoin on August 11th, 2020.
Investment Structure
MicroStrategy’s direct Bitcoin investment, part of its corporate treasury, allows investors to gain cryptocurrency market exposure through its publicly traded stock MSTR, bypassing the need for direct dealings with cryptocurrency exchanges or wallets.
Lower Fees
Investing in MSTR, a publicly traded company, offers indirect exposure to Bitcoin, avoiding the usual fees for buying, holding, and selling Bitcoin directly.
This approach eliminates typical transaction and management costs associated with buying real Bitcoin.
Regulated Framework
MSTR operates under U.S. regulations for publicly traded companies, offering investors security and transparency. This compliance ensures proper corporate governance and financial reporting, creating a safer and more structured investment environment.
Cons
Market Volatility
MSTR’s heavy reliance on Bitcoin makes its stock susceptible to the inherent volatility of the Bitcoin market.
Bitcoin’s price can be extremely volatile, influenced by regulatory news, technological developments, and market sentiment.
This volatility can lead to significant fluctuations in MSTR’s stock price.
Concentration Risk
MSTR’s significant investment in Bitcoin does represent a concentration risk.
The company’s financial health is closely tied to the performance of a single asset class.
This lack of diversification can be risky, especially if the digital asset market faces downturns or regulatory challenges.
Potential Liquidity Concerns and Impact on Core Business Model
During market downturns or significant drops in Bitcoin’s price,
MSTR could struggle to sell its extensive Bitcoin holdings without affecting it’s stock valuation.
The strong focus on Bitcoin may divert resources from its main business in business intelligence and cloud services, possibly impacting its long-term health and stock performance.
GBTC Pros and Cons
Pros
Direct Exposure to Bitcoin: GBTC holds actual Bitcoin, directly exposing its price movements.
Simplicity: It’s a straightforward way for investors to gain exposure to Bitcoin without the complexities of managing cryptocurrency wallets and keys.
Traditional Investment Vehicle: As a trust, it can be held in certain tax-advantaged accounts, like IRAs.
Cons
Higher Fees: GBTC typically has a higher fee structure due to the costs of securely holding physical Bitcoin.
Premiums or Discounts: GBTC can trade at significant premiums or discounts to the underlying Bitcoin price, affecting investment value.
Less Liquidity: Being an OTC product, it lacks the same level of liquidity as a standard ETF.
ETF Conversion Risk: May be forced to “Sell & Rebuy” Bitcoin as part of the ETF conversion process
Learn how GBTC works, how it’s associated with the recent crypto contagion, and why buying spot Bitcoin and taking self-custody helps you avoid all of these risks today.
MSTR vs. GBTC Performance, Trade-offs and Concerns
The widening discount has become a significant factor affecting GBTC’s performance, meaning its shares trade below the value of the Bitcoin they represent.
This persistent and growing discount has led investors to question the trust’s attractiveness, as some seek a more accurately priced way to gain Bitcoin exposure.
Structure and Pricing Issues
Trust vs. ETF
GBTC holds actual Bitcoin, providing a direct way to gain exposure to the cryptocurrency.
However, its structure as a trust rather than an ETF has resulted in significant discrepancies between its trading price and the actual value of the Bitcoin it holds.
Shifting from Premium to Discount
Initial Premium, Now Discount
Initially, GBTC traded at a premium but has recently moved to trading at a discount, raising concerns about its effectiveness as a Bitcoin investment vehicle.
Comparing GBTC and MSTR
Risk and Stability
MSTR appeals to investors willing to take on more risk in exchange for potentially greater returns through a diversified software and Bitcoin investment approach.
GBTC is more suitable for those seeking stability, although its widening discount remains a concern.
GBTC Unpredictable Discount: A Risk Factor
Unpredictability of GBTC’s Discount to Bitcoin
Trust Structure and Bitcoin Holdings
GBTC is structured as a trust holding Bitcoin, providing investors exposure to Bitcoin’s price movements without requiring them to directly own the cryptocurrency.
However, unlike traditional ETFs, GBTC shares often trade at a significant discount or premium relative to Bitcoin’s net asset value (NAV).
Measuring the Discount/Premium
Discount/Premium to NAV
The discount or premium to NAV measures the percentage difference between the market trading price of an ETF or closed-end fund (CEF) and its underlying NAV.
This measure is crucial in assessing how much a security’s market price deviates from its intrinsic value.
Impact on Closed-End Funds
Limited Share Creation
Closed-end funds like GBTC do not create new shares after their initial public offering, leading to market prices diverging significantly from the actual value of their assets.
As a result, GBTC can trade at a premium or discount to its NAV, posing a risk to investors who seek predictable pricing.
Primary Four Implications of GBTC’s Unpredictable Discount
Investment Risk: Investors in GBTC are exposed to the risk of not only Bitcoin’s price fluctuations but also the variability of the discount. Even if Bitcoin’s price rises, the discount can widen, potentially leading to underperformance relative to direct Bitcoin investments.
Valuation Challenges: The fluctuating discount complicates the valuation of GBTC as an investment. Determining the right entry and exit points becomes more challenging when the discount level is volatile and seemingly detached from Bitcoin’s market performance.
Market Sentiment Indicator: A widening discount might reflect decreasing confidence or increasing regulatory or market concerns, while a narrowing discount could signal growing investor optimism.
Strategic Considerations: A deep discount could be viewed as a buying opportunity, assuming it will eventually narrow. Conversely, a small discount or a premium might signal a good time to sell.
MSTR Structure and Impact on Performance
Investment Risk: MSTR’s performance is shaped by its substantial Bitcoin investments and enterprise analytics and software business. This dual focus leads to benefits from Bitcoin’s growth but also exposes it to tech industry risks like competition and tech advancements, creating a distinct investment profile.
Valuation Challenges: MSTR’s valuation is complex, impacted by the volatile value of its Bitcoin assets and enterprise software business performance. Its stock price might not align with its Bitcoin value due to market factors, and its software business is valued based on earnings, growth, and competition.
Market Sentiment Indicator: MSTR reflects Bitcoin market sentiment due to its significant holdings. Its stock benefits from positive Bitcoin investor confidence but can suffer negative sentiment or regulatory issues, regardless of its core business performance.
Strategic Considerations: Investors should assess MSTR’s strategy in balancing Bitcoin investments with its software business.
The Decision: MSTR or GBTC?
Exposure Considerations: GBTC closely tracks Bitcoin’s price, while MSTR’s diverse activities beyond Bitcoin can influence its stock.
Risk Tolerance: GBTC’s direct exposure to Bitcoin’s price can be more volatile, while MSTR’s exposure, through its broader business operations, may offer more stability but with different risks associated with its diversified activities.
Diversification Potential: GBTC focuses mainly on Bitcoin, offering limited diversification. MSTR, however, blends real Bitcoin ownership with tech sector exposure and its software business success.
Long-Term Outlook: GBTC’s value depends on Bitcoin’s long-term trends. MSTR’s outlook is tied to Bitcoin’s future, technology, and analytics business growth.
With all the complexities and downsides, is there a great alternative to MSTR and GBTC with a more straightforward approach?
YES!
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Drew, a class of 2013 Bitcoiner, is a Research Analyst for Swan Bitcoin.
He has worked in institutional VC/PE, FinTech, and DLT consulting for over six years. He also brings over twelve years of experience working with national nonprofits and start-ups in education and software development in several leadership roles.
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