Cryptocurrency trading on stock market: trusts, GBTC, ETCG explained

Cryptocurrency trading is considered to be very risky in comparison with other popular investment choices. Some people rely only on stock trading as they consider this to be quite safe. The real thing is that everything has its level of risk and can both help you earn or lose some money.

Cryptocurrency can be traded like stocks. This is a good choice for people who do not want to be involved in the hassles associated with keeping actual crypto coins on their own. The thing that allows this is called a “Trust”. However, only two currencies from the crypto market support this feature. These are Bitcoin and Ethereum. The prices for trusts are mostly connected with the coin values, so if the price changes in one thing, it does as well in another thing. Both have their advantages and disadvantages. Let us have a closer look at it.

What are cryptocurrency investment trusts?

Even experienced investors often try to avoid actual crypto trading. The market is too unregulated, so storing Bitcoins and other currencies is quite challenging. An investment trust really simplifies the process as it can be traded like a stock. This way, cryptocurrency trading on the stock market is possible.

The main disadvantage is that trusts have high annual and premium fees. The full name of the BTC trust is Grayscale Bitcoin Investment Trust (GBTC). It is the first and most popular crypto trust system. The system has first appeared in September 2013 with the help of Grayscale Investments.

A Bitcoin Investment Trust isn’t considered to be an ETF but it is modeled based on the SPDR Gold Trust. That is why GBTC is a physically-backed ETF. The success of this trust completely mirrors that of Bitcoin. This is because of the fact that the value is fully derived from BTC.

More about GBTC

Some facts that can serve as evidence of the successfulness of this system. For example, in October 2018 GBTC had $1.34 billion assets. At the same time, there were 2.06 million shares. The biggest problem is that the price per trust is $50 000 and not everyone is ready to invest such a sum of money at once. Additionally, an annual fee of 2% is charged and it accrues daily.

The providers of this system suggest that the management of the fund is more valuable than the paid fee. The greatest selling point is considered to be the security of it. As the cryptocurrency market isn’t stable, it’s really challenging to store crypto coins. GBTC offers a possibility to forget about the traders’ worries and invest funds into something more stable than simple cryptocurrencies.

GBTC disadvantages

There are a couple of points that represent the main disadvantages of the Bitcoin Trust system. These are:

  • High premiums and annual fees.
  • The volatility of the crypto market.

There is a one-year holding period for this kind of trust.

To own one BTC in shares, a bit more than a thousand of these are required.

The Bitcoin Investment Trust was the only working fund created specifically for Bitcoin at that time. That is why investors have and had to pay high fees. Now the situation is a bit different, as Ethereum Trusts are available too.

A good fact is that premiums have been getting their prices lowered with time. For example, from 2017 till 2018 the prices have changed more than two times the value of their underlying BTC. This shows that the system is moving forward and isn’t left for decay.

The final problem is that by buying such Investment Trusts, investors have to hold them for a year before having the possibility of reselling them. The sums that are required are really high, that is why it is important to weigh all the risks ahead not to have any problems. For the holding period of time, it is recommended to invest in a couple of smaller projects if it is possible, as the first rule of investment says not to put all the money in one place.

The Ethereum Classic Investment Trust

The Ethereum Classic Investment Trust (ETCG) was also created by Grayscale It basically has all the advantages as those of the GBTC and can be traded as stocks too. The system is familiar and transparent, that is why investors can be sure it can be trusted.

The ETCG claims to track the prices for Ethereum tokens. Just like GBTC, the price completely depends on the success of this specific coin. Since May 2019, the Ethereum Trust has risen in price by 36% which is a great result. Those investors, that have bought it at its release have the highest chance of gaining some really good profit.

The first advantage is the familiarity: ETCG can be traded just as stocks. Also, there is a high level of transparency. Governmental regulators, however, still didn’t figure out what and how should they do with this system. That is why this specific market promises to stay unregulated and decentralized for the nearest future.

ETCG disadvantages

Just as with GBTC, Ethereum Investment Trusts come at a high premium. The reason is that these trusts are traded at prices in excess of their underlying values. For example, in the middle of June GBTC was being traded at a 64% premium to the real value of BTC that was held in the fund. At the same time, ETCG had a 194% premium. The difference is enormous, as we can see.

Another disadvantage is the volatility of the cryptocurrency market. Even though it isn’t influenced by most things that affect Forex, some world events can totally change everything. For example, when China banned Initial Coin Offerings, the Bitcoin Investment Trust has slumped by 12% of its price. On the whole market, only Gold Shares have risen in price for a small bit and everything else stayed on the same spot. That is one of the examples of why it is really risky to invest money in to basically any matter. Always keep that in mind.

ICO, IEO, and Token-Sales

Crypto token sales are a very good way for investors to grab cheap deals on newly created currencies. A lot of young projects decide to make crowd-sales which allow people to buy shares of the issued tokens. This allows the projects to gain a good sum of money in short terms and get more popular.

There have been many examples that show the efficiency of this strategy. Early-stage projects often offer low prices for shares, tokens, and trusts. There were situations, where people earned 10x profit from their primal investment.

The problem is that not all projects have the possibility to reward their investors with high profits. At first, mostly the cryptocurrency itself is being sold. Trusts aren’t just as popular yet. Also, not all projects are interested in developing as some of them are scams are only created to milk money from inexperienced users.

There also is a problem that is a project raises a small sum, it won’t have enough money to develop properly. A project that raises large sums probably won’t have enough investors to buy their tokens on secondary trading markets. That is why it is risky, but awardable if you make a good guess.

Why do cryptocurrency trusts become more valuable?

Our example will be based on Bitcoin, as it is the leading currency on the market with a price above $9000 per coin. We already know that Bitcoin Investment Trusts allow traders to purchase Bitcoins without owning the real coins. If the price for BTC raises, then it is expected for the Trust price to rise by the same percentage value.

Have you already heard about Libra, the cryptocurrency released by Facebook? Well, this recent release had some impact on Bitcoin too. This stablecoin made Bitcoin rise in price for some time and fall again. News and events like these can increase users’ interest in the crypto world and provoke a sell-off. What is going to happen after any event is usually predicted by experts. In this case, it refers to trusts too. Any news that shows that there is a future for any cryptocurrency (for example, the fact that they are going to be used in everyday payments) benefits the market.

Trusts have an advantage by being a bit safer. Even though they aren’t that popular, they do exist and have investors that are interested in them.

Is there any sense in investing in trusts?

As long as cryptocurrencies that offer trusts (Bitcoin and Ethereum at the moment) live and are used or traded, trusts live as well. The only problem is that this market isn’t so popular as simple token trading, requires a major investment and at least a year to keep it without selling it.

Before deciding what type of trading is more comfortable for you, make some research or ask a Dowmarkets professional to consult you. Depending on your demands, the best strategy will be formed. It is even possible to calculate the possible profit and time requirements, even though this won’t be 100% precise.

Trading sheer cryptocurrency will require more time and analyzing as you don’t have a hold period and can trade right away. Crypto stocks, however, have to be held for a year and can be sold only after this period passes. Additionally, a lot of events can occur during the hold period, meaning that a lot of price changes can occur in a positive and negative side for you as the investor. And we are interested in profit, right?

Dowmarkets works with this kind of cryptocurrency trading on the stock market, so it’s worth a shot. You can buy a trust with minimum fees so that your sheer profit would be higher than with other brokers.

Cryptocurrency ICO and Stock IPO difference

An ICO is an initial coin offering. These are some features related to it:

  • No regulatory oversight;
  • weak tracking;
  • short offerings duration;
  • everybody can have access to the offerings.

Even though ICOs are not regulated yet, a lot of governments are interested in it. With time this might change and have a great effect on the market. ICOs are not supposed to issue any type of legal documentation. The developers decide on their own what should they write in the documentation file.

IPO is an initial public offering. The features related are:

  • Comprehensive regulatory oversight;
  • strong track record;
  • lengthy offerings duration;
  • offers exclusive access to offerings.

Stock IPO are more regulated, usually require a long term investment and aren’t always available for everyone. IPOs have to register a prospectus, which is a legal document needed for registration by the mandatory requirement.

Why trade with Dowmarkets

One of the brokers that allows to trade cryptocurrencies as stocks is Dowmarkets, an international company that has more than 10 years of experience on the trading market. The reasons you can trust this broker are:

  • a lot of good reviews;
  • experience on the market;
  • professional analysts and traders;
  • various promotions;
  • the support is always online.

The registration will take less than a minute. All you need to do is make a deposit, confirm your identity and start trading now!

Dowmarkets also offers a mobile app for users that are interested in trading on the way. It has all features, tools, and information as in the web-platform. The design is both simple and professional at the same time, so even if you have never used any similar platforms, it won’t be a problem.

Posted: 2.07.2020 | Ludmiła Gorodnichenko
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