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so here are my thoughts on $GBTC
first, so everyone who may not know, it is a trust that holds bitcoin. great!
it trades on the otc market and, if you are big enough (essentially) you can invest in the trust directly.
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first, so everyone who may not know, it is a trust that holds bitcoin. great!
it trades on the otc market and, if you are big enough (essentially) you can invest in the trust directly.
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Nearly all of the time, $GBTC trades at a premium to value as the demand for an easily accessible #Bitcoin 
product is very high.
So those that can invest directly at the NAV (the value of the bitcoin it holds) by doing a large amount and not "overpaying" on the premium
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product is very high.So those that can invest directly at the NAV (the value of the bitcoin it holds) by doing a large amount and not "overpaying" on the premium
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It turns out you can do this "in-kind" by depositing BTC and getting restricted stock. You have to hold it for 6 months (there are other trust with different restrictions).
So, voila! Borrow BTC, deliver, get restricted shares, and sell later to collect premium!
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So, voila! Borrow BTC, deliver, get restricted shares, and sell later to collect premium!
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There are a lot of fees involved, etc. This started out difficult and helped the market get more efficient for end users buying on the otc market.
It is now very very easy. Firms have set up ways to package the entire trade, including leverage.
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It is now very very easy. Firms have set up ways to package the entire trade, including leverage.
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Leverage really makes this a huge trade if it works. And if it does not, it really really hurts.
What makes it work? It needs a large-ish premium to make it happen.
A lot of these trades have been put on some months ago and I believe (w/o good data) they are coming off soon.
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What makes it work? It needs a large-ish premium to make it happen.
A lot of these trades have been put on some months ago and I believe (w/o good data) they are coming off soon.
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So ... the leverage.
The trader posts the restricted shares as collateral against the BTC loan. This works really well because the shares of the trust are highly tied to BTC and they have been trading at a premium so the loan is overcollateralized.
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The trader posts the restricted shares as collateral against the BTC loan. This works really well because the shares of the trust are highly tied to BTC and they have been trading at a premium so the loan is overcollateralized.
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The trouble is that this trade is CROWDED. $GBTC has been posting incredible growth. Firms are paying 6.5% or more to borrow BTC for 6 months. BlockFi has 5%+ of the outstanding shares.
https://www.coindesk.com/blockfi-takes-5-stake-in-grayscales-4-8b-bitcoin-trust
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https://www.coindesk.com/blockfi-takes-5-stake-in-grayscales-4-8b-bitcoin-trust
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Three Arrows hedge fund has publicly declared holding $1.2B of GBTC.
https://www.theblockcrypto.com/post/89928/three-arrows-reports-more-than-1-2-billion-position-in-grayscales-gbtc
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https://www.theblockcrypto.com/post/89928/three-arrows-reports-more-than-1-2-billion-position-in-grayscales-gbtc
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let me be clear about BlockFi -- my belief is that 1) they are the funding vehicle for this and not the trader and 2) they are very well run and risk managed. the point is the size of the financing of this trade
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The growth of GBTC is amazing:
https://www.investopedia.com/crypto-firm-grayscale-reports-record-aum-for-2020-5095973
kudos to them. clearly it is due to the rise in BTC both as an attraction and the price raising the notional value of the assets.
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https://www.investopedia.com/crypto-firm-grayscale-reports-record-aum-for-2020-5095973
kudos to them. clearly it is due to the rise in BTC both as an attraction and the price raising the notional value of the assets.
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kk. that's awesome. why am i bringing this up.
this is a crowded trade and it is highly levered.
funds like these (closed end style funds) typically trade at discounts (with notable exceptions).
It is very sensitive to bitcoin price and to competitors to greyscale
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this is a crowded trade and it is highly levered.
funds like these (closed end style funds) typically trade at discounts (with notable exceptions).
It is very sensitive to bitcoin price and to competitors to greyscale
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Osprey, Valkyrie are new on the scene. BlackRock is talking about BTC.
There is real risk in this trade. IMO
Lately the premium has declined.
But this has the potential to get crazy if it turns into a discount.
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There is real risk in this trade. IMO
Lately the premium has declined.
But this has the potential to get crazy if it turns into a discount.
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IF - big IF -- $GBTC trades at a discount, there is a real probability that margin calls will have to be made against these loans -- or worse, the lenders did not build into their models that the premium could go down.
just like the GFC assumption about home prices going up
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just like the GFC assumption about home prices going up
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GBTC has a creation process. It does NOT have a redemption process. Meaning, you can't deliver GBTC to get bitcoin back. If it did, there would be a process for the traders to get out. Or for traders to buy at a discount to get the BTC and therefore lessen a discount.
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This has the potential to be a big big deal. the ONLY way to get out of GBTC is by selling it.
If GBTC goes to a discount, there is a risk that lenders will sell the collateral in an effort to limit their losses.
Unless margin calls are met by the traders.
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If GBTC goes to a discount, there is a risk that lenders will sell the collateral in an effort to limit their losses.
Unless margin calls are met by the traders.
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How does one meet a margin call in an illiquid position going badly? ANY WAY YOU CAN.
This is what ppl mean when they say all correlations go to 1 in a crisis: you sell what you can to raise money to make your margin calls.
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This is what ppl mean when they say all correlations go to 1 in a crisis: you sell what you can to raise money to make your margin calls.
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IDK if it will happen. I think it is a tail risk event with larger than tail risk probability. Meaning I'm saying it is not super likely to happen but really bad if it does.
I suspect this will mean that there will be some serious selling in BTC because of it.
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I suspect this will mean that there will be some serious selling in BTC because of it.
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In fact, it may even be the real reason that #btc has been going down last few days.
I'm a BTC bull and I love the space. I am, however, concerned about this.
I know this is an unpopular view about a popular trade.
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has been going down last few days. I'm a BTC bull and I love the space. I am, however, concerned about this.
I know this is an unpopular view about a popular trade.
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And the latest https://twitter.com/JSeyff/status/1352744028203347969
Appreciate all the great feedback on this thread.
I'm trying to reply to all the great questions but tbh I'm having trouble keeping up. I have, ya know, like work to do too. :)
so be patient with me. i've never gotten so many notifications before. prolly gonna write this up too
I'm trying to reply to all the great questions but tbh I'm having trouble keeping up. I have, ya know, like work to do too. :)
so be patient with me. i've never gotten so many notifications before. prolly gonna write this up too
