Base Layer
Posts
💎 GBTC or ETHE - which is better?

💎 GBTC or ETHE - which is better?

PLUS: Bitcoin & US debt rising 📈

Alex M.
September 19, 2023

GM everyone. This is 2036, the crypto newsletter that pays you.

Here’s what we’re serving up today 🍲: one of our recommended arbitrage opportunities is buying GBTC and ETHE. But what are they? And which one is better?

Let’s dig in.

🥔 Today’s meat and potatoes

Get smarter on crypto in 2 minutes

Grayscale was one of the first providers of crypto investment products you could own directly in your brokerage account.

The Grayscale Bitcoin Trust (GBTC) holds Bitcoin.

The Grayscale Ethereum Trust (ETHE) holds - you guessed it - Ethereum.

For years, these trusts were your only option to have crypto in your brokerage account. As a result, both traded at a hefty premium to the value of their underlying assets.

But in 2021, the SEC denied Grayscale’s request to convert GBTC to a bitcoin ETF - a move that would have eliminated any premium or discount.

On top of that, new proxies for crypto entered the market (Microstrategy stock, Coinbase stock, Canadian ETFs, etc.).

So both GBTC and ETHE’s premiums turned into discounts.

BUT - if you believed that one day, Grayscale’s products would be converted to ETFs - these discounts seemed like a screaming bargain.

i.e. you could buy Bitcoin and Ether for 40-50% off. Not bad.

That’s why we first wrote about this opportunity in April. We thought an ETF conversion was a good bet.

Back then:

GBTC was trading at a -38% discount to the value of its bitcoin
ETHE was trading at a -47% discount to the value of its Ether

😲

But since then, the market has agreed with us.

A judge threw out the SEC’s reason for blocking Grayscale’s ETF conversion, and it looks like GBTC will be converted into a bitcoin ETF within the next 4-6 months.

As a result:

GBTC is now trading at just a -17% discount
ETHE is trading at just a -27% discount

i.e. the gap is closing.

So, while bitcoin and Ether have had a great year, GBTC and ETHE have both massively outperformed them:

So, with all this outperformance, which one is best today?

Well…

right now, bitcoin has stronger fundamentals
a Bitcoin ETF is likely to get approved in the short term
the gap between the two funds is only 7%

Bitcoin is generally a lower-risk asset than Ethereum. And bitcoin tends to lead market rallies before altcoins, including Ethereum.

Given that GBTC’s conversion to an ETF is close, GBTC looks better in the near term.

But on a longer time scale, there is probably more upside in Ethereum.

ETHE is trading at a larger discount than GBTC - and an Ether ETF will probably be next right after the Bitcoin ETF.

On a shorter time horizon (less than 6 months), GBTC could outperform.

But on a longer time horizon (6 months - 3 years), we’d be seriously surprised if ETHE doesn’t outperform.

Ethereum is just getting started. Its roadmap is long and detailed. And since The Merge exactly one year ago, Ethereum has become a crypto-native bond paying annual dividends.

Bitcoin is an element, like digital gold. But Ethereum is a technology company with different risks and upsides.

Whichever you pick, the discount is closing.

And if you got in early, congratulations 👏

If you didn’t, we’ll be here to guide you through more opportunities like this one.