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GBTC High Premium Alert

Two months ago I suggested that there is an opportunity in the GBTC (Grayscale Bitcoin Trust) as it was trading at historically low premium:


https://exchange.realvision.com/post/gbtc-low-premium-opportunity-5f7de2b80b23a767be73e3af


As it turned out, that was a very good call, and I got a double booster for my Bitcoin position. While the Bitcoin was up 113% in 2 months, the GBTC was up 172%.


Yesterday it closed at 35.7% premium to its NAV:

In the last days, I sold all my GBTC and moved back to the Bitcoin Futures. Although they are trading at a premium of about 1% for every month, and it cost to roll them over, I have reason to believe that in the following 2 weeks we are going to see the GBTC premium collapse back to a single digit number.


My analysis is based on the following hypothesis:

Since Jan21 as it become a SEC reporting company, the lock-up period of the accredited investors was reduced from 12 months to 6 months.

Suppose that you are an institutional investor that bought 10M$ 6 month ago, then you can sell it in the open market and at the same time repurchase the shares directly from Grayscale at NAV, and be locked-up for another 6 months. This is the best Arbitrage out there today. So, I assume that all accredited investors that got into GBTC just can't wait for their lock-up period to end so they can take advantage of that. (no borrowing for short sell is available).


The question is when did they invested in GBTC. Luckily for us, we can see that in the following weekly inflows chart:


As you can see (in the red rectangle) in the next 2 weeks we can anticipate a huge release from lock-up of GBTC shares.

If for example the inflows on the week of Jun22 were about 90M$ into bitcoin, then because Bitcoin price was 9600$ back then, this amount is now about 215M$ (NAV value). Since it is traded at premium, we can see 290m$ selling pressure in the market, that only non accredited investors will need to buy.

And in the following week it's even bigger (350M$).


To conclude, my bet is that in the next weeks the GBTC premium is going down, and will only recover by the end of January.

But what if you can only hold GBTC as your Bitcoin exposure? I would just sell it then, because it represents a Bitcoin price of 31K, so even if Bitcoin will go up to 26K in the next 2 weeks, my guess is that you could still buy GBTC cheaper.

The only thing that can influence that decision is the Tax prospective, that you need to check out by yourself.


Cheers


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