This GBTC Bitcoin ETF Analysis Hurts My Head.

From seeking alpha comes this gem about GBTC the Bitcoin ETF. The author acknowledges the extreme premium in which the ETF trades over the Bitcoin price. In other words if you buy GBTC you are currently paying >80% or more than just buying Bitcoin. (see more here)

First, he claims that “buying directly through coinbase has a +40% premium”. I don’t know why and he doesnt support his claim in the article. Yes, coinbase charges a fee, but it is not where near 40%.

He offers that GBTC offers cold storage through Xapo, and Coinbase offers insurnace but it comes with astericks – see authors article here.

Ok, so lets say that GBTC is more secure for storage of Bitcoin over Coinbase. The author ignores the fact that most responsible crypto owners get a hardware wallet or some other “off exchange” wallet.  This fact doesnt help justify the massive premium you’re paying for GBTC.

Finally there is this, the author presents an argument by a GBTC investor:

“I’ve decided to go with GBTC as a way of safely getting exposure to Bitcoin via my brokerage account, because I’m VERY long on it, and I can easily liquidate high dollar amounts (over $10K) at any time I want. And it’s all on the up-and-up, easily trackable for tax purposes, which I care about. My thesis is that the current premium is less important to me than the exposure because it’s 41% (or whatever the current percentage is) of a small fraction of what the ultimate price of bitcoin will be 10 years from now. It’s not perfect, I acknowledge that, but it strikes me as my best option, especially if I’m viewing this as one of my high-risk, high-reward investments.”

The argument is that in 10 years, the GBTC premium will be irrelevant. Of course, this leaves out he problem of P/E compression, or the potential catastrophic failure of Bitcoin in general. But, this line of thinking is congruent with the thinking of a Bitcoin bull. This isn’t “blind” investing or totally ignorant. I can respect part of this.

This completely ignores the fact that there are at least two other proposed Bitcoin ETF’s with the SEC. Care to bet that in 10 years there will be even more? Whats going to happen to the GBTC premium when other ETF’s come out which dont trade a premium?

INVESTORS WILL GO TO THOSE OTHER ETFS, THEREBY ZAPPING THE PRICE OF GBTC. If you’re ETF currently trades at an 81% premium to Bitcoin, and that premium erodes to zero – thats a loss.

I think you lose holding GBTC, there really is no way around it.

DO NOT BUY BITCOIN ETN’s

While the SEC messes around trying to rule on the Winklevoss Bitcoin ETF (ticker:COIN) they are ignoring the riduclous premiums in the Bitcoin ETNs. The Bitcoin Investment Trust (ticker: GBTC) from Greyscale trades in the USA and XBT which trades in Europe. XBT just broke $100 million in assets and works with XAPO for cold storage.

This is just my opinion, but:

DO NOT BUY BITCOIN ETN’s

Lets focus on GBTC for sake of argument.

Current Bitcoin prices are ~$2,514

GBTC trades at ~$388/share

GBTC has 1,868,700 shares outstanding, which they say gives each investor 0.09273259 Bitcoin per share.

1,868,700 GBTC shares outstanding * 0.09273259BTC/share = ~173,289 Bitcoins in holding

$388/share GTBC * 1,868,700 GBTC shares = market cap value: $725,055,600

$725,055,600 mkt cap/173,289 Bitcoins = ~$4,184/bitcoin

Therefore, if you buy 1 share of GBTC at 388, you are paying ~$41 for ~$23 worth of Bitcoin. Thats an absolutely absurd >150% premium. Not to mention the 2% annual fee GBTC charges.

This premium is not the GBTC’s fault. Its investors that need their heads checked. GBTC cannot reweight their Bitcoin holdings in anywhere near real time. The Winklevoss ETF, should it make it through the SEC, would reweight much more often giving investors a vehicle which more closely tracks the actual price of Bitcoin.