Grayscale Bitcoin Trust: An opportunity to buy Bitcoin for cheap?
Highlights
GBTC’s top brass seem to be dealing with their new competition by going through the various stages of grief over the loss of their monopoly status, starting with denial.
Grayscale Bitcoin Trust (GBTC) is the world’s largest bitcoin trust.
Currently GBTC holds roughly 650,000 bitcoins (almost 3.1% of bitcoin’s current circulating supply).
On their site, Grayscale lists the bitcoin they hold per share of GBTC issued as 0.00094534 Bitcoin.
This means that every 1,058 shares of GBTC represents 1 bitcoin.
GBTC’s price is supposed to mirror that of Bitcoin because its value is derived solely from the Bitcoin it represents.
Recently however, and for the first time in its history, GBTC has been trading at a steep discount to the value of the bitcoin it holds.
Why is GBTC trading at a discount?
GBTC shares can trade at a discount/premium to the price of underlying bitcoin because they cannot be redeemed for actual Bitcoin.
Had GBTC shares been redeemable for Bitcoin, any price deviations between the shares and their net asset value would get arbitraged away.
This means that GBTC's price is determined by how much their value proposition, namely exposure to bitcoin price, is in demand.
When GBTC was the only game in town, demand for GBTC shares was high.
So high in fact that at one point in 2017, shares traded for a 132% premium to the price of the underlying bitcoin.
Now with new Canadian ETFs whose management fees are much lower than GBTC’s 2%, and more ETFs on the way, there is more competition.
Consequently, demand for GBTC has lagged the price appreciation of bitcoin.
The Good Ol Days are Gone.
GBTC’s top brass seem to be dealing with their new competition by going through the various stages of grief over the loss of their monopoly status, starting with denial.
This is evident by their reluctance to bring down their 2% management fee in order to remain competitive.
Eventually, I expect them to reach the final stage of the grieving process which is acceptance.
How long it takes them to get there is anyone's guess.
If they don't they will continue to destroy shareholder value and their discount may become increasingly acute.
So if you’re bullish on bitcoin long-term, and you believe GBTC's management will make the right moves to fix their discounted shares, this may be an opportunity to buy some exposure to Bitcoin for cheap.
Having said this, there is no telling how long greed will keep GBTC's management from reading the writing on the wall.
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