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💎 GBTC or BTC - which is better?

💎 GBTC or BTC - which is better?

PLUS: Ferrari ❤️ crypto

Alex M.
October 16, 2023

GM everyone. This is 2036 - your daily dose of crypto, memes, and macro.

Here’s what we’re serving up today 🥘: The SEC did not appeal its ruling in the GBTC case, which means GBTC will likely get converted into a Bitcoin ETF soon. This is great news for GBTC… but less so for bitcoin.

Let’s dig in.

🥔 Today’s meat and potatoes

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Since April, we’ve talked a lot about GBTC.

The Grayscale Bitcoin Investment Trust is one of the largest bitcoin investment products in the US.

And two years ago, it filed to be converted into a Bitcoin ETF. The SEC denied the conversion, and Grayscale sued the SEC.

As investors feared the conversion would never happen, GBTC started trading at a discount to the value of its underlying bitcoin.

No bueno.

At the bottom, GBTC was trading at a -49% discount to the bitcoin it held.

This means that by buying GBTC, you could buy $20,000 worth of bitcoin for ∼$10,000.

I don’t know about you, but that’s music to my ears 🎶.

In June, Grayscale won its lawsuit against the SEC.

If the SEC didn’t appeal the case, GBTC could convert into a bitcoin ETF. The discount would close immediately.

Traders took notice. Arbitrage buyers started to buy GBTC to bet on the discount closing. And that’s exactly what happened.

Over the last few months, the discount has narrowed to just -15%.

But traders are (mostly) smart. They bought GBTC not to bet on the price of bitcoin but to bet on the approval of a bitcoin ETF.

So, to hedge their positions - and eliminate any losses due to price fluctuations in bitcoin’s price - they bought GBTC and shorted (bet against) bitcoin simultaneously.

The traders made out like bandits. This year, GBTC outperformed bitcoin by more than 2X:

And it looks like that outperformance will continue for just a bit longer.

On Friday, the SEC decided it would not appeal the court’s decision that held back GBTC’s conversion into a bitcoin ETF.

This means:

GBTC will almost certainly get converted into a Bitcoin ETF soon
The odds that all bitcoin ETFs (Blackrock, Fidelity, etc) will get approved soon increased to 90%

The arbitrage opportunity in GBTC will close soon.

For now, GBTC still trades at a -15% discount to the value of its underlying bitcoin. When GBTC gets converted into an ETF, the discount will disappear.

I expect a lot more investors will pile into GBTC now to squeeze profits from the remaining -15% discount.

Remember, making 15-20% in one year is huge for folks in traditional finance.

These same billion-dollar investors will likely also short bitcoin to make sure they don’t lose money if the bitcoin price falls while the discount closes.

But that’s the problem. The value of the discount is ∼$2.6 billion right now. If the GBTC buyers also short bitcoin, it could create a lot of continued selling pressure on bitcoin.

This means that in the next couple of weeks, we could see: