Both of these investments are statutory trusts but work similarly to our ETF offerings. You can add them to your portfolio just like any ETF we offer, and we’ll transition you in and out of these investments tax-efficiently.
Important things to note:
- We don’t offer individual coins or wallets
- Cryptocurrency investments carry significant risk! We limit your cryptocurrency allocation to no more than 10% of your portfolio value
- Cryptocurrency trusts aren’t eligible for Tax-Loss Harvesting
- Cryptocurrency trusts can’t be used as collateral for PLOC
What are cryptocurrency trusts?
We offer exposure to cryptocurrencies through shares of Grayscale’s statutory trusts. These trusts allow you to invest in a bundle of cryptocurrency coins, similar to how ETFs and other funds hold certain allocations of stocks, bonds, and/or other assets. However, unlike ETFs, statutory trusts aren’t traded on stock exchanges and may have higher trading costs as a result.
How do the trusts work?
Grayscale has formed various cryptocurrency trusts, including GBTC and ETHE. These trusts contain a bundle of coins, which Grayscale keeps in offline, “cold” storage. Each trust’s coins are stored separately (not commingled across the funds or with other assets) and are not lent out. When you buy a share of a trust, you own a portion of the trust, which provides indirect exposure to cryptocurrency.
Risks to be aware of before investing:
- The share price of a trust may vary from the value of its underlying assets (the cryptocurrencies)
- Cryptocurrency may be more volatile than other investments and can be influenced by unpredictable external events that affect confidence in the crypto ecosystem
- Cryptocurrency is at additional risk of electronic attacks
Can I own cryptocurrency directly through Wealthfront?
No. At this time, we only offer exposure to cryptocurrency through statutory trusts. You can’t own individual coins or add coins to a crypto wallet. We offer cryptocurrency as a diversification asset within a long-term investment strategy, not as a short-term investment or form of payment.
Why can’t cryptocurrency exceed 10% of my total portfolio value?
To help clients avoid creating an overly risky portfolio, you can’t set your cryptocurrency allocation, in the form of cryptocurrency trusts (GBTC, ETHE), to over 10% of your portfolio’s total value. We consider cryptocurrencies, such as Bitcoin and Ethereum, and cryptocurrency trusts risky for a few reasons:
Cryptocurrency is significantly more volatile than most securities-based ETFs
Over the five-year period ending on October 31, 2022, SPY (the SPDR S&P 500 ETF Trust), a common measure of general market performance, experienced a realized volatility of 21.2%.1 Over the same time period, Bitcoin experienced a volatility of 77.9%, almost four times as volatile.2 High volatility may come with bigger upside, but also is more likely to create larger dips in value as well.
Cryptocurrency trusts have added risk from supply and demand in the marketplace
Unlike ETFs, trusts don’t have an efficient creation and redemption mechanism — the process that usually keeps the price of an ETF close to the value of its holdings. This means that the price of a cryptocurrency trust’s shares can differ significantly from the value of the underlying assets, especially when compared to ETFs. To provide an example, the share price of GBTC relative to the net asset value of the underlying Bitcoin holdings has ranged from a premium of 101% on December 18, 2017, to a discount of 45% on November 18, 2022.
Cryptocurrencies and cryptocurrency trusts are more susceptible to electronic attacks
Since cryptocurrency assets can be stored online, they can be “hacked” more easily than an ETF that holds stocks or bonds. However, 100% of Grayscale’s cryptocurrency assets are stored offline (“held in cold storage”), greatly reducing the risk of theft.
How are the coins inside the cryptocurrency trusts protected?
All of the cryptocurrency trusts we currently offer are provided by Grayscale. 100% of the coins in these trusts are held in cold storage (offline), which is considered one of the most secure ways to store cryptocurrency. Grayscale does not lend the underlying coins out. Additionally, these assets are covered by insurance in the case of theft.
1. CRSP, Center for Research in Securities Prices, LLC, http://www.crsp.org/
2. FRED, Economic Research Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/CBBTCUSD