MSTR vs. GBTC Compared: Which is Best in 2024?

MicroStrategy (MSTR)

MSTR leverages Bitcoin as its primary reserve asset and offers the potential for significant appreciation. Its diversified investment and enterprise software operations approach provides a more stable investment profile compared to the singular focus of Grayscale Bitcoin Fund (GBTC) on Bitcoin’s price fluctuations.

MSTR stands out for its substantial Bitcoin investments, positioning it as THE trailblazer among publicly traded companies adopting Bitcoin as its primary treasury asset. MSTR provides a proxy for investors seeking Bitcoin exposure without direct cryptocurrency investment. 

Grayscale Bitcoin Trust (GBTC)

GBTC, the world’s largest Bitcoin ETF, offers investors the opportunity to invest in Bitcoin as a security, circumventing the difficulties associated with the direct purchase, storage, and safekeeping of Bitcoin.

Through Coinbase Custody, the Trust passively possesses real Bitcoins. With AUM totaling $22.7 billion, it levies a 1.50% annual fee on investors. On average, it experiences a substantial daily trading volume, exceeding 26 million shares.

Meanwhile, the GBTC tempts investors with direct exposure to Bitcoin’s price movements. Here’s the twist — what if I told you that neither MSTR nor GBTC is your best bet? 

MicroStrategy is a prominent company that has pivoted its focus towards Bitcoin-only investment. 

Originally established as a provider of business intelligence, mobile software, and cloud-based services, MSTR has shifted its corporate strategy to add real Bitcoin to its corporate balance sheet as its primary reserve asset. 

This strategic move has provided a first-mover advantage and positioned MSTR as a unique blend of a traditional software company and a cryptocurrency investment vehicle.

• Structure: MSTR is a NASDAQ-listed company uniquely invested in Bitcoin and Bitcoin-only as its primary treasury asset. This direct investment approach sets it apart from other digital asset investment vehicles.

• Investment Focus: MSTR’s primary investment focus is Bitcoin, which is held in its corporate treasury. It reflects its strong belief in the digital currency’s long-term value and growth potential.

• Fees: As a public company, MSTR doesn’t have typical investment fees like management or performance charges. However, investors should consider its stock price, exchange trading fees, and any premium or discount on the stock relative to its Bitcoin holdings.

• Performance: 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 investors a traditional investment vehicle to gain exposure to Bitcoin’s price movements without the challenges of buying, storing, and safekeeping Bitcoin directly.

• Structure: GBTC is a trust, not an ETF. It trades over the counter (OTC) and doesn’t offer the same liquidity as owning stock in a publicly traded company.

• Investment Focus: Like MSTR, GBTC holds actual Bitcoin, offering more direct exposure to Bitcoin’s price.

• Fees: The annual fee for GBTC is the highest of all 11 approved spot Bitcoin ETFs.

• Performance: GBTC’s price can deviate significantly from the underlying Bitcoin price, often trading at a premium or discount.

Before we dive in, here are the current spot Bitcoin ETF fees and how many BTC each holds as of April 27th, 2024:

Grayscale: The Grayscale Bitcoin Trust (GBTC) fee is 1.5% — the fund holds 297,323 BTC with Coinbase.

BlackRock: iShares Bitcoin Trust (IBIT) fee is 0.25% fees for the first 6 months (or $5 billion) — the fund holds 274,487 BTC with Coinbase.

Fidelity: Wise Origin Bitcoin Trust (FBTC) fee is 0.25% (with 0% fees until July 31, 2024) — holds 153,603 BTC in self-custody.

Ark/21 Shares: Ark/21 Shares Bitcoin Trust (ARKB) fee is 0.21% (0% fees for first 6 months or $1 Billion) — holds 43,706 BTC with Coinbase.

Bitwise: Bitwise Bitcoin ETF (BITB) fee is 0.20% (0% fees for first 6 months or $1 billion) — holds 33,896 BTC with Coinbase.

VanEck: The VanEck Bitcoin Trust (HODL) fee is 0% of the fund — holds 9,278 BTC with Gemini.

Valkyrie: Valkyrie Bitcoin Fund (BRRR) fee is 0.49% (0% fees for first 3 months) — holds 7,926 BTC with Coinbase.

Invesco: Invesco Galaxy Bitcoin ETF (BTCO) fee is 0.25% (0% fees for first 6 months or $5 billion) — holds 6,055 BTC wth Coinbase.

Franklin Templeton: Franklin Bitcoin ETF (EZBC) fee is 0.19% — holds 5,134 BTC with Coinbase.

WisdomTree: WisdomTree Bitcoin Trust (BTCW) fee is 0.30% (0% fees for first 6 months or $1 Billion) — holds 1,227 BTC with Coinbase.

Hashdex: Hashdex Bitcoin ETF (DEFI) fee is 0.90% (converted from futures ETF to Spot ETF 03/27/24) — holds 178 BTC with BitGo.

Fee information is updated daily here.

Keep in mind many of the funds offer discounted fees for a limited time period. Also, you’ll want to look at the company backing the ETF and ensure it’s one you trust and choose one of the ETFs that have the most assets under management (AUM).

Want to known more about spot Bitcoin ETF fees? Check out our complete overview.

Check out his most recent episode below…

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.

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.

1. Direct Exposure to Bitcoin: GBTC holds actual Bitcoin, directly exposing its price movements.

2. Simplicity: It’s a straightforward way for investors to gain exposure to Bitcoin without the complexities of managing cryptocurrency wallets and keys.

3. Traditional Investment Vehicle: As a trust, it can be held in certain tax-advantaged accounts, like IRAs.

1. Higher Fees: GBTC typically has a higher fee structure due to the costs of securely holding physical Bitcoin.

2. Premiums or Discounts: GBTC can trade at significant premiums or discounts to the underlying Bitcoin price, affecting investment value.

3. Less Liquidity: Being an OTC product, it lacks the same level of liquidity as a standard ETF.

4. 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.

Widening GBTC Discount vs. MSTR Stock Exposure

The discount on GBTC has been a point of contention and a significant factor in its performance evaluation. This discount essentially means that the shares of GBTC are trading at a lower price than the Bitcoin value they represent. 

Over time, this discount has not only persisted but widened, raising questions about its attractiveness to investors who might prefer a more accurately priced exposure to Bitcoin.

GBTC provides a more direct way to gain exposure to Bitcoin — it holds real Bitcoin. However, its structure as a trust, not an ETF, has led to significant variances in its trading price compared to the actual value of the Bitcoin it holds. 

GBTC initially traded at a premium but recently shifted to trading at a discount, raising concerns about its effectiveness as an investment vehicle for Bitcoin exposure.

MSTR vs. GBTC — Risk-Adjusted Performance (Sharpe Ratio)

The sharpe ratio comparison between MSTR and GBTC is critical for understanding their investment efficiency in the cryptocurrency market. 

MSTR’s sharpe ratio of 3.70 indicates a moderate risk-adjusted return, impacted by its direct investment in the volatile Bitcoin market. In contrast, GBTC’s higher sharpe ratio of 4.75 suggests a more favorable risk-reward balance, likely due to its trust structure providing more stability and diversification than MSTR’s approach. 

A 12-month rolling Sharpe Ratio chart visually demonstrates these differences, offering valuable insights for investors considering Bitcoin-related investments in MSTR or GBTC.

MSTR vs. GBTC — Volatility Comparison

MSTR exhibits higher volatility at 28.02%, leading to more significant price fluctuations due to its direct Bitcoin investment. This could offer higher returns but with increased risk. 

GBTC, with an 15.82% volatility, provides a more stable investment, as it holds Bitcoin indirectly through a trust, reducing the impact of Bitcoin’s price swings. 

MSTR appeals to those willing to take on more risk. GBTC is more suitable for those seeking stability in the Bitcoin and cryptocurrency market.

Unpredictability of GBTC Discount to Bitcoin

GBTC is structured as a trust that holds Bitcoin, allowing investors to gain exposure to Bitcoin’s price movements without directly owning the cryptocurrency. However, unlike traditional ETFs, GBTC shares often do not trade in perfect alignment with the net asset value (NAV) of the Bitcoin they hold. 

The discount or premium to NAV measures the percentage difference between the trading price of an ETF or closed-end fund (CEF) and its NAV. This figure is crucial for assessing how much a security’s market price deviates from its actual value. Its particularly significant for closed-end funds, as they do not create new shares after their initial public offering.

Consequently, their market price can diverge significantly from the actual value of their assets. This discrepancy has led to GBTC trading at either a premium or a discount to its NAV.

1. 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.

2. 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.

3. 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.

4. 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.

1. 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.

2. 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.

3. 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.

4. Strategic Considerations: Investors should assess MSTR’s strategy in balancing Bitcoin investments with its software business.

• 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. 

Every Monday — Friday, Dante Cook releases a Bitcoin Daily ETF Show. Check out his most recent episode below…

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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For more information, contact Terrence Yang, Swan Managing Director, at terrence@swan.com or 312.448.8012 (text or call) for details.