Bitcoin Investment Trust (NASDAQOTH:GBTC), a popular fund for retail investors, carries a management fee of 2% of assets on an annual basis. Those who have large sums can pay lower wholesale prices for bitcoin storage and custody. A new solution from Coinbase costs 1.2% of the bitcoin’s value each year, in addition to an up-front fee of $100,000. The service is designed for institutional investors who own more than $10 million of the digital currency.
When you consider that bitcoin doesn’t take up any physical space — it exists only in digital form — the high cost of custody and storage is mind-blowing. Based on regulatory filings, SPDR Gold Trust (NYSEMKT:GLD) historically paid about 0.08% of the value of its gold for storage and custody services on behalf of its shareholders, or approximately $1.04 per ounce, per year. In contrast, Coinbase’s custody solution costs 15 times more.
Investors don’t seem bothered by the high price of having bitcoin in someone else’s custody. Shares of Bitcoin Investment Trust closed on Friday at $906 per share. Each share had a then-current asset value of $720.85 each. In other words, investors were willing to pay a 26% premium over bitcoin’s actual market value, and 2% a year thereafter, for a convenient way to own the digital currency.
Why investors will pay high prices for safe storage
If you want to invest in gold, you could buy and store your own gold bars in your home. But it often makes more sense to buy shares of SPDR Gold Trust, even if it means you lose 0.4% of your gold to all-in expenses each year.
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