Who are the Mysterious Owners of GBTC?

KEY TAKEAWAYS

  • Grayscale Bitcoin Trust (GBTC) claims that 88% of the investors are institutions by 1Q2020 but doesn’t provide details.
  • Nasdaq filing shows that only 1% of GBTC is owned by institutions. We discuss the possible reasons behind the inconsistency.

GBTC has stockpiled 102,178 Bitcoins, approximately 39% of the newly mined Bitcoins in 2020, emerging undisputedly as the most important marginal buyer in the crypto market. The rapid growth of GBTC’s asset under management begs the question, who are the mysterious owners of GBTC?

Grayscale’s 1Q2020 report lays out a detailed investor profile, both by segment and by geography. The diagrams below illustrates that approximately 90% of Grayscale investors are institutional investors, particularly hedge funds.

Source: Grayscale

However, the data from Nasdaq tells a different story. Grayscale’s crypto investment products, Grayscale Bitcoin Trust (GBTC) and Grayscale ETH Trust (ETHE), are both listed on the Nasdaq OTCQX. According to the disclosure information filed in Form 13F, 21 institutional investors including ARK Invest hold 3,639,926 shares of GBTC as of March 31, 2020, which constitutes 0.97% of the total shares outstanding.

Source:Nasdaq (as of June 5, 2020)

Who is the biggest named institutional investor?

Founded in 2013, ARK is known for heavily investing in disruptive technologies and innovations, such as Bitcoin and Tesla. ARK’s investment in GBTC started in 2015, when the price of BTC was still lingering below USD500. At one time, ARK allocated a sizable 6-10% position of two funds, namely ARK Innovation ETF (ARKK, AUM around USD 2 billion) and ARK Next Generation Internet ETF (ARKW, AUM around USD 468 million), into Bitcoin. The investment generated handsome returns of more than 80% at BTC’s historical high, which contributed to both funds’ meteoric rise in 2017. However, ARK’s latest disclosure shows that ARKK no longer holds any GBTC shares in its portfolio, while ARKW maintains a position of only 2.39% in GBTC, approximately 24.5 million USD.

Source: Ark Investment (as of May 6, 2020)

Who else?

We also discover in GBTC’s annual report that its affiliated party, Digital Currency Group, holds 4.05% of GBTC’s outstanding shares, both directly and indirectly, as of March 13, 2020.

Source: Grayscale (as of March 10, 2020)

These numbers add up to a little over 5%. Given the available public information, GBTC’s apparent shareholders hold just around 5% of the total outstanding shares. As for the remaining 95%, we fail to identify the rightful holders.

The apparent inconsistency in numbers, 5% vs. 90%, points to the seeming contraction to the disclosure requirements spelt out in 13-F filing from Nasdaq.

One probable explanation is that institutional investors are exempted from reporting their holdings of certain securities such as GBTC on Nasdaq OTCQX. GBTC is not included in the Official List of Section 13F Securities by SEC. Section 13(f) securities include equity securities that trade on an exchange (including the Nasdaq National Market System), certain equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities. Therefore, the 21 institutional investors including ARK Invest are voluntarily disclosing information on GBTC holdings, while other institutions choose otherwise.  

On the other hand, given the secondary market premium, we speculate that the majority of the capital from institutional investors is raised through private placement under Regulation D, which falls in the category of restricted securities offering and also exempt from regulatory reporting.

The inconsistency between Nasdaq filing and the Grayscale report can be attributed to partial voluntary disclosure. However, the majority of GBTC share ownership is still shrouded in mystery.