Today I spent some time working on buying Bitcoin equivalents in US brokerage markets. After all the fraud that has occurred in the last 12 months, I am still very strongly in the camp of self-custody of your Bitcoin. I also am still very confident in the long-term success of Bitcoin. In fact, the fraud that we have witnessed actually is an argument FOR Bitcoin, not against. I do, of course, understand that most people burned by the blowups of FTX, Voyager, BlockFi, FTX, Three Arrows, Luna, etc, are going to be cautious, or just plain OUT of the market for a while. I get it. That being said, I think you're going to come back eventually. I saw a quote recently that I liked:
So, I'm still holding Bitcoin, buying, and suggest you buy as well. But, buy for the long term. Now, one thing I've been looking at is the discount opportunities that exist in the US equities market. The Grayscale Bitcoin Trust is basically a closed-end fund that has the single largest holding of Bitcoin apart from Satoshi's wallet. Currently 635,236 bitcoin are at the Grayscale Bitcoin Trust (GBTC). The Trust is structured such that you can invest, and then 6 months later receive shares equivalent to your investment. There was a time arbitrage trade going on for a couple of years and some firms made a lot of money, and took big positions in this trade. Ultimately, the premium evaporated, and a lot of those firms took losses trying to sell their shares at a discount (or didn't sell and are holding the loss). The stated plan for the Trust was to convert to an ETF. Unfortunately, the Securities and Exchange Commission keeps rejecting Grayscale's (and others') proposals to convert to ETF. Last summer, GBTC filed a lawsuit vs SEC in order to allow conversion to an ETF. (The lawsuit seems reasonable to me, it is on the grounds that SEC allowed 2 Bitcoin Futures ETFs and that the risk to the investor is the same.)
I have tried to insert the table I created at Google Sheets to track stocks and funds that are available to buy at your stock brokerage. It is embedded here, but it may not display correctly for you, so try the link.
The issue here is the counterparty risk. I was burned hard by this, and am therefore hesitant to put any more capital at risk. However, the price opportunity is significant, and worth a look As of today, the discount to buy GBTC is 44%. We get a chance to buy Bitcoin on sale. The downsides as I see it are:
Unknown risk with Digital Currency Group (DCG) and Genesis. DCG is the parent/owner of Grayscale, CoinDesk, and Genesis. Barry Silbert is the CEO. Genesis is the trading arm. Genesis is currently suffering from more liabilities than assets and is probably heading towards bankruptcy. Genesis and DCG have a $1.6B loan they have to sort out, Genesis was harmed by the 3AC bankruptcy and Gemini is owed $900M by Genesis. Gemini used Genesis in their Earn program to generate yield. So that is a lot, and it is murky, and unsolved. DCG and Genesis also appear to own a substantial amount of GBTC. Theoretically, Grayscale and its Trust are separate legal entity and this shouldn't be a risk.
The 2% management fee. There is an annual fee on the fund collected in Bitcoin, so that the Net Asset Value (NAV) per share decreases slightly every day. This is an above industry rate, but when they were the only game in town to buy Bitcoin with your brokerage/retirement account, they could get away with it. This fee has not gone away, and is a huge moneymaker for Barry Silbert.
Continued Bitcoin price drop. GBTC should be priced at around $15.38 instead of $8.65 as I type this. (Bitcoin currently ~$16,900.) If BTC goes lower, GBTC likely will as well.
Osprey Bitcoin Trust is another opportunity with a similar huge discount (see table above for current price) but it is currently trading at 37%. It has a 0.5% management fee, which is obviously considerably better than Grayscale's. Also, I am unaware of any bankruptcy or litigation risk on the horizon with Osprey. This would appear to be a safer choice, with less opportunity for gain.
The upside is of course that you get to ride the price up when bitcoin recovers. I have no idea when that will be, but I am confident it will happen. The momentum is strong and growing. The global adoption of bitcoin is increasing and accelerating. The rise of this fairly-mined non-state controlled digital currency is inevitable.
A bright side in this mess with GBTC is that David Bailey , head of Bitcoin Magazine, is organizing a shareholder group to influence Grayscale and hopefully allow redemption of Bitcoin. He had a Twitter Spaces today and said he thinks he has about 100M shares in his group at this point, which is over 14% of shares. I definitely could see this going somewhere. One option is to switch to a new Trust sponsor that would allow redemption, and also decrease the management fee. I have a sizeable position of underwater GBTC in my retirement account, and this is good news to me! I was already working on this post today before I got on that Twitter Space, LOL.
Back to that table. It should automatically update with prices, and I plan on editing/improving it over time. The companies are obviously entities that have more value than the bitcoin, but I did the ratio for premium or discount as if there was no other value than the bitcoin just to see. Microstrategy comes out pretty far ahead of the rest, as it is currently undervalued on its Bitcoin alone, and the business exists and is generating revenue AND they are adding Bitcoin every quarter. I haven't purchased any yet, but this table is starting to convince me.
Also, there are Bitcoin ETFs in Canada, but I am not sure the Google Finance price automator is doing their math correct. Canadian data is grey. Check the math on these before you make any investment decisions. I did get some of my data from Bitcoin Treasuries. Let me know if you have any other entities you would like displayed!
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