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GM everyone. This is 2036. We scroll for gems all day so you don’t have to.
Here’s what we’re serving up today 🍲: The discount on GBTC has narrowed from -49% to -11% this year. That means the arbitrage trade is nearly over. After a bitcoin ETF gets approved, what’s the next no-brainer trade?
Let’s dig in.
Congratulations to all of you savvy investors.
Earlier this year, we started covering the arbitrage opportunity of buying:
Grayscale Bitcoin Trust (GBTC)
Grayscale Ethereum Trust (ETHE)
…at big discounts to the value of their underlying crypto.
The premise was simple.
Grayscale funds allow you to get crypto exposure through your brokerage account.
The funds are expensive (2-2.5% annual fees), but you don’t have to self-custody the crypto.
For years, GBTC and ETHE were so popular they traded at big premiums to their bitcoin and Ether holdings.
But other players entered the market (Microstrategy & Coinbase stock, Canadian ETFs, etc.) and the SEC refused GBTC’s conversion to an ETF.
So GBTC and ETHE started trading at discounts to Bitcoin and Ether.
At the beginning of the year, GBTC traded at a -49% discount to the value of its underlying bitcoin (and ETHE -59%). No bueno.
But if the funds get converted into ETFs, the discount disappears, and investors make money from both the price increase in BTC/ETH and the discounts closing.
So GBTC and ETHE were bets on the regulatory approval of a Bitcoin and Ether ETF in the US.
And as the odds of a Bitcoin ETF came closer - it was a great trade.
GBTC and ETHE are up 2X and 3X more than Bitcoin and Ether this year.
GBTC has even outperformed NVIDIA, the darling stock of the AI craze.
And the discount on GBTC has narrowed to just -11%.
This means there’s still some juice to squeeze out of the trade - but not much.
So where do we go next?
A bitcoin ETF will likely get approved in the next 75 days.
So you can either:
wait for GBTC to convert to an ETF and keep holding it
sell GBTC now and…
buy another stock-like instrument with exposure to BTC (Microstrategy, Coinbase, Canadian Bitcoin ETF, etc.)
wait for a Bitcoin ETF to get approved in the US
All these options are great, and Coinbase stock especially hasn’t rallied as much as it could have.
But if you wanted to keep playing the discount arbitrage, you could also turn to ETHE.
The Grayscale Ethereum Trust (ETHE) is interesting because:
The discount on ETHE is still -20%
Bitcoin usually rallies first (which it’s doing now), followed by Ether (coming up next)
After a Bitcoin ETF is approved, an Ether ETF will probably be next
That means there’s still a lot of upside to Ether and ETHE.
The discount on ETHE will probably keep narrowing. It’s gone from -59% to -20% this year already.
And if you want to take on even more risk, GDLC is another Grayscale fund with an index-fund-like basket of assets: Bitcoin, Ether, Solana, Ripple, etc.
It’s currently trading at a -30% discount to its net asset value but has no clear path to becoming an ETF yet.
Despite this uncertainty, it is up +217% this year.
Keep in mind that GDLC is substantially higher risk than ETHE.
And if you’re looking for other arbitrage trades on Grayscale funds - be careful.
Other Grayscale funds - like the Solana or Filecoin funds - are trading at huge premiums to their underlying crypto.
We’ll update you if another Grayscale fund becomes an interesting buy.
2/ Binance is losing market share… fast [we’ll cover what this means in a future newsletter]
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