Buying GBTC at current prices is a recipe for disaster.
GBTC is a Bitcoin Investment Trust traded on the OTC markets in the U.S.
On first glance that sounds like a great way to gain exposure to the cryptocurrency industry via more traditional investment vehicles.
One doesn't have to go through Coinbase, Poloniex, Bittrex, or any one of the large number of exchanges out there that seem to get hacked or have security issues almost weekly.
Sounds great on the surface, but what is GBTC?
GBTC is a Bitcoin investment trust, created in 2015, it was the first publicly traded investment vehicle of it's kind.
It buys and holds Bitcoins giving investors the option of buying the fund instead of the buying the underlying asset directly.
It is one of the few legitimate options like this out there.
Since it is a trust, purchases and sales can only happen 1 time per day, at the close. Not at market prices during the day like a stock.
That is where an ETF hoped to find it's niche, but that is a story for another day.
What is the problem?
The problem with buying GBTC has nothing to do with it's underlying fundamentals, but instead, the problem lies solely with its price.
Currently GBTC has 174,174 Bitcoins, which equates to roughly an $836 Million dollar valuation.
That is a problem when the current market cap of GBTC is roughly $1.5 Billion USD.
That means that GBTC is currently trading for roughly 2X it's current asset value.
There are likely many reasons for this, but the big take away should be that GBTC is trading at an unsustainable valuation currently.
What does this mean?
This means that Bitcoin would need to double in price to catch up to GBTC's current price.
The more likely scenario will be that when the popularity around Bitcoin dies down or when more similar investment vehicles come to market the price will drift back towards it's actual net asset value.
Which would be roughly a 50% haircut from current levels.
That means that anyone buying GBTC currently is buying an asset that is trading for 2X its market value.
Nothing good can come of that investment strategy...
Stay informed my friends.
Sources:
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Follow me: @jrcornel
Thanks a bunch for the heads-up! This is going to be valuable help to many.
I guess, from here, it would be very resourceful for us all to become more aware of ways to ramp up onto the cryto-currency train. Do you have any quick and fairly easy solutions to that. For example, if someone has $10K, how can they move it from fiat to Steem for instance?
Thanks again for your quality work and precision, it is appreciated. Namaste :)
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Thanks for the tip. Namaste ;)
I recommend to stay with Crypto Currencies with the Highest Volume, that prevents Wales from pumping or dumping the price. Compare Crypto Volume here: https://coinmarketcap.com/
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thank you for the warning
Also, what happens if the Coin ETF is approved in the US? GBTC would crash hard short term. regards
Yep, I think so as well. A 50% haircut is likely in the cards for this one in the near future...
Still, for people with a strong hand, thinking of the long term, it still is a good option as long as they don't panic sell in the next drop. This is why I say so:
https://steemit.com/bitcoin/@cryptoeagle/cryptocurrency-wallet-users-vs-facebook-users-where-are-we-now-making-the-case-for-the-million-dollar-coin
Thank you very much for this great post, it was informative and really interesting.
I was not aware that such big price differences were even possible in the free market. I always assumed that margin trading bots would close those inefficiencies within fractions of a second.
Is there any information out there why this find is so extremely overvalued? Is it because "old-school" traders don't understand crypto? I hardly believe that, it is not that difficult xD.
Maybe it has to do with the way the fund is only traded in market close, but I still can't wrap my mind around how this would change anything. If someone can help me understand this, feel free to comment.
Thanks for sharing your thoughts in the GBTC investment danger...your analysis is very good as it makes no mathematical sense to invest in an asset that is highly over valued. Thanks for sending out the warnings.
Yes. I think for most it is easier to buy this trust (and possibly safer in their eyes) then to go out and create a coinbase account etc, and buy the asset directly. I can't wait till there is an ETF for this stuff...
Good point, I agree with you.
GBTC is the first steps to the BIT (Bitcoin Investment Trust) ETF, currently with filling for NASDAQ. OTC markets have less liquidity and participants than a main Stock Exchange. There are administration fees. The high demand by the limited players on the OTC market pushes the prices to a premium. When it becomes an ETF this will get balanced by ETF creations and cancellations (redemptions) for and with the underlying asset, Bitcoin. If you are an investor that need to got through a regulated market, or a regulated asset manager this is one of the few options. Rule for the pricing is determined transparently in the prospectus and there is a voluntary agreement from investors to buy/sell at this prices.
Yes and when these others become available, I would imagine the premium will be sucked right out of it. That is kind of my point in all of this. At this stage I would say the premium is much more likely to decrease from these levels going forward than it is to increase...
Good advice. I hold the following: BTC, ETH, LTC, DASH, MONERO, SBD, STEEM, gold, silver, lead, cash, no debts, BTSC, BITCF (woopsie daisy on them!), THMG, KNTNF, SING, GOHE and a regional bond fund (job matches 1 percent contribution fully), a few 529s (regularly rolled out with penalty for stacking).....thoughts on all that? I don't trust anyone but myself to manage it, but it eats up a lot of time. And most 457/529/401 etc are just scams like the pyramid scheme crap everyone tries to peddle.
Looks good, just be careful with any of the OTC crypto related stocks. As you can see with BITCF, they are mostly just trying to make a quick buck off the hype around Bitcoin etc.
Aye, aye! Thank you kindly!
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Awesome write up, simple info a lot of people might miss.
Thank you for sharing
Bitcoin Investment Trust. I think any of us that are in it is because it is accessible through our retirement accounts.
Yes but for those that are looking for an asset that is highly correlated with the price of Bitcoin, this isn't it... I think most would be pretty upset if they bought GBTC at $800 and Bitcoin went up to $8k and the price of GBTC didn't move...
Short term, perhaps, but you shouldn't invest in GBTC for a quick flip. It's designed for those who believe BTC has a long-term future. Once the price of Bitcoin is more aligned with the share of GBTC, then it won't matter (there will always be a premium for ease of purchase, management, etc.)
I agree with your points on the premium decreasing because of competition and other factors. I spoke about that in the video too.
Good point. I think I will wait till most of that premium is sucked out... that or wait for an ETF. :)
Never knew anything about this, thanks for the information!
Great post @jrcornel I agree with what you write, it's very interesting, thanks for sharing that information, we must support ourselves as a community, I appreciate it if you I would give me a look at my last post and give me your opinion, Cheers!
Thanks for inform as GBTC every one , every one alert...
Thanks for giving us heads-up about it. I'm gonna try to investigate it myself but your post surely delivered the point. When it comes to investing, we should always be careful and smart ^^
A few days ago, I read one of the posts on Steemit that says GBTC's price will determine how much Bitcoin price will increase in the future. Is this true?
Yea was reading on this and wondering myself, why you wouldn't want to own BTC yourself. Lol. Pay fees for others to hold it for you and charge you more on the price..
Thank you for the heads up. I thought about getting into that a while back since they take IRA funds. I passed at the time and am glad I did.
It was always trading at a premium but it seems to go from 20% to about 50%. I guess all the bitcoin buzz enabled them to cash in. I bet their influx of buyers is huge of late.
Thanks for this important information. Watching and learning!
Good advice. Thanks.
Thanks for such a great post which is very help full for me.
How do you know that there are currently 174,174 Bitcoins held by GBTC?
Because there are many many companies on OTC that say many many things, some more true than others....
In general it's also high risk to invest in cryptos, and i bet as long as bitcoin and other cryptos are going for the moon - then some people are willing to take a chance with GBTC . Buying cryptos and stock can never be guaranteed - so my advice is, don't ever invest more than you are willing to loose.. :) High risk, potential high reward :P. But anyways great article, and it good with some insight - thanks.
I'm new to Crytocurrency, as far as I understood it, people are really up to help others. By posts like yours helping us a lot. Thank you...
Thanks great article. There is also the corporate tax uncertainty (which would in worst case scenario create even bigger value haircut) - and potentially unexpected tax forms each winter :/. I just posted on this point recently
Thank you for the post!!!
Hey luv! I am getting so much better at understanding these posts, it's pretty exciting. Recently I asked my husband to sit down and explain things to me and he gave me great resources to further my education.
And today I posted, well technically it's my second crypto post ever, but this is the first one in which I talk about strategy...it's actually an email that my husband sent to his close friends and a couple family members that he said I could put on steemit. I would be really curious on your take, if you get an opportunity to read it :)
Thanks again for your great post and the heads up just pumping them out post after post. Good for you always great info ;)
Great post. Thanks for sharing this great advice. Keep sharing.
Thank you for the heads up
Thank you for sharing, the warning. @jrcornel
Very useful and insightful information. Anything with an MCAP 2x its assets is in my opinion a highly risky investment and thus not worth risking capital for.
Thank you for bringing this to my attention. I will be informing family members who are invested in this of the danger ASAP.
Thank you for the information. I certainly to trade in poloniex as a new trader and also do practice in bittrex. Hope no investor will lose their money they earned by hard work.
I have ever heard about that but i did not believe it...but now i believe about that
Hey @jrcornel
Loads of thanks because I thoughts were opposite. I thought it would be a great opportunity to invest in a company which is into cryptocurrencies but your article opened my eyes. You have saved many people from investing in a wrong stocks.
Just like you said, I thought share market is more reliable than cryptocurrencies and I should invest there.
I think I should invest in cryptos and be aware about what's going on in the market place.
Thank again :)
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thanks for warning dude
How's it feel to be wrong?
Haha how long you been holding on to that one? I actually feel pretty good. I am not wrong, no matter how high it goes I won't be wrong as long as it is tracking BTC. The point was that when new investable BTC products come out, that premium in it will eventually slip out. Which means it could go down by 40% without the underlying even moving. That remains just as true today as it did 3 months ago. When more futures products launch and eventually ETFs and ETNs, that is when this thing trades back to its Net Asset Value. If you can find shares to short it, let me know.