$GBTC Speculation, Information, and Cogitation

[bitbouillion]

Why would one buy a BTC for $490, when the price on US-regulated exchanges is $244?

The answer to this question is simple.  The only advantage in buying this fund over buying BTC straight is the ability to purchase in your tax shielded accounts.  Therefore, the logical explanation is that people are paying a premium to get exposure to tax free BTC gains.  If you believe the price is headed to $10,000, you would much rather purchase at $500 without tax liabilities than to purchase at $250 with tax liabilities.  That is the only logical explanation for the premium we are seeing.

Then we had to see these premiums on other funds too, like commodity or currency ETFs. E.g. I can put GLD easily into a tax shielded account, but not gold bullion. Nonetheless there is no premium on GLD.

[Biodom]

Why would one buy a BTC for $490, when the price on US-regulated exchanges is $244?

The answer to this question is simple.  The only advantage in buying this fund over buying BTC straight is the ability to purchase in your tax shielded accounts.  Therefore, the logical explanation is that people are paying a premium to get exposure to tax free BTC gains.  If you believe the price is headed to $10,000, you would much rather purchase at $500 without tax liabilities than to purchase at $250 with tax liabilities.  That is the only logical explanation for the premium we are seeing.

Then we had to see these premiums on other funds too, like commodity or currency ETFs. E.g. I can put GLD easily into a tax shielded account, but not gold bullion. Nonetheless there is no premium on GLD.

This is a moot point anyway as you can buy more than 2 bitcoins for one "GBTC" bitcoin and come ahead even in a taxed account as long as your taxes are less than 50%.
In addition, most retirement accounts are tax-deferred, not untaxable (except Roth where you are taxed ufront).

[cryptoboy.architect]

From company information:

Each BIT share represented ownership of 0.1 bitcoins initially. The trust will not generate any income and regularly sells/distributes bitcoins to pay for its ongoing expenses. Therefore, the amount of bitcoin represented by each share gradually declines over time.

BTC/USD = $243
BIT/USD = $530

Nice markup! They say it's easier to move money once it's in the system. I'm curious if that's the case and people don't care the 110% premium or they are just un-informed investors?

I can give you a use case - in retirement accounts most people can only buy official stocks. So if you expect BTC to go to $50,000, you don't care if you get it at $250 or $500, if your retirement account is such that profits are not taxed, you are still better off paying double in the long run.

this is not so.
$500 buys you 2.03BTC, and same $$ buy 10 GBTC= ~1BTC.
You to have tax rates in excess of 50% in order to make buying GBTC justified mathematically.
However, two prices seem to move to converge. When GBTC was $65 and bitcoin 234, it made more sense to sell GBTC and buy bitcoin.
I think that GBTC and bitcoin prices will converge at some point.

I'm talking about Roth IRA accounts. You pay 0% on the profits. Let's say you got 1 BTC @ $500 in a Roth IRA acct, and 10 years from now you sell it for $50500. That's $50K profit with 0% tax. Now let's say instead you bought 2 BTC and in 10 years you realize $100K profit. Now you pay 9% California tax + 38% Federal tax + medicare, etc. - roughly 50% in tax. You get only $50K in actual profit. At the end - it's the same thing. So up to double the price, people in a tax free retirement accounts can afford to buy.

Disclaimer: This is just an opinion, I'm not a financial or a tax expert, so consult one before making decisions.

[ssmc2]

From company information:

Each BIT share represented ownership of 0.1 bitcoins initially. The trust will not generate any income and regularly sells/distributes bitcoins to pay for its ongoing expenses. Therefore, the amount of bitcoin represented by each share gradually declines over time.

BTC/USD = $243
BIT/USD = $530

Nice markup! They say it's easier to move money once it's in the system. I'm curious if that's the case and people don't care the 110% premium or they are just un-informed investors?

I can give you a use case - in retirement accounts most people can only buy official stocks. So if you expect BTC to go to $50,000, you don't care if you get it at $250 or $500, if your retirement account is such that profits are not taxed, you are still better off paying double in the long run.

this is not so.
$500 buys you 2.03BTC, and same $$ buy 10 GBTC= ~1BTC.
You to have tax rates in excess of 50% in order to make buying GBTC justified mathematically.
However, two prices seem to move to converge. When GBTC was $65 and bitcoin 234, it made more sense to sell GBTC and buy bitcoin.
I think that GBTC and bitcoin prices will converge at some point.

I'm talking about Roth IRA accounts. You pay 0% on the profits. Let's say you got 1 BTC @ $500 in a Roth IRA acct, and 10 years from now you sell it for $50500. That's $50K profit with 0% tax. Now let's say instead you bought 2 BTC and in 10 years you realize $100K profit. Now you pay 9% California tax + 38% Federal tax + medicare, etc. - roughly 50% in tax. You get only $50K in actual profit. At the end - it's the same thing. So up to double the price, people in a tax free retirement accounts can afford to buy.

Disclaimer: This is just an opinion, I'm not a financial or a tax expert, so consult one before making decisions.

Or you buy 20 BTC now and when it reaches 50k you gtfo of the U.S.

[cryptoboy.architect]

Or you buy 20 BTC now and when it reaches 50k you gtfo of the U.S.

I'm not talking about myself. I'm talking about people who have $200K in retirement acct, they can not yet withdraw.

[Chainsaw]

Speculating about a positive possible outcome:

We are two steps away from the market revaluating to include ~135,000 BTC of buying pressure.
(They track this in the BIT thread, a great synergy thread to the $GBTC: https://bitcointalk.org/index.php?topic=337486.0 )

Provided we:
1. Demonstrate growing demand for coins offered from BIT holders (Bid volume stays flat or grows).
2. See evidence of a BIT seller using proceeds to reinvest in the cycle (large, new BIT purchases).

This would complete the loop, the market will have evidence of the full cycle.
The trust functions as a microcosm of what Bitcoin's effect stands to be on a global scale.

Investors profit. Profits are reinvested to grow the fund and create future profits.
There is a race effect, a motivation for current holders to sell first (high demand and premiums), and also a race effect to rebuy.

An example.
We see 5,000 BTC get sold (50,000 shares GBTC released).
A few days later BIT purchases 8,500 shares on market (the market coins were cheaper, fees paid, etc)
Market price goes up $5.

We now have a few extrapolations. 8500 shares / 135000 shares = 1/20th effect. If market volume remained constant, a $5 increase represents 1/20 of movement.
Revaluated net effect of GBTC current holder cycling and rebuying, $100.

But what happens then?
The larger market will get to decide. If it rejects that valuation, volume will fill in on the Ask sides, and the same $ generated from the BIT->GBTC sales will move the price up less.
Conversely, revaluated contracts and a 'race to get cheap coins' could cause a swift revaluation upwards.

When thinking about the likelihood of this, one big question that comes to mind is - will current BIT profiteers reinvest? First thought says yes, who wouldn't sign up for another year when you just netted a 100% premium for your coins?  But the window of opportunity is closing. Next year it is very unlikely (IMHO) that $GBTC will be the only investment option.  To keep it simple, let's just say COIN is the only other emergent fund.

You're not likely to get a premium in this way, investing in COIN. I speculated earlier that I expect GBTC and COIN prices to end up close to each other and close to Bitcoin prices. However, that is not to say that each won't carry a premium.

Remember, in each case you are buying a stock for the future performance of that fund.
Once it is demonstrated that a profiting fund allows that fund to buy more coins, thus increasing the value of that fund...the same principle will apply to GBTC and COIN.
People will be willing to pay more today because of the expectation. The purchase of the stock includes the purchase of its future actions.

An ongoing thought in progress. I wanted to share for rejection/refinement/general knowledge sharing.

We're used to planning for future selloffs (auctions).
It's novel to think through how a market will valuate a future buy-in.

[Sitarow]

http://quotes.freerealtime.com/dl/frt/M?IM=quotes&symbol=GBTC&type=Time%26Sales&SA=quotes

Time and Sales for Bitcoin Investment Trust   May 08, 2015
Symbol:   (GBTC)

Time      Price   Volume   Market
15:57:31      49.00   163   OTO
15:55:20      49.00   50   OTO
15:53:52      49.00   100   OTO
15:53:50      49.00   100   OTO
15:53:42      50.00   5   OTO
15:45:29      51.00   150   OTO
15:37:37      50.00   500   OTO
15:32:46      49.95   10   OTO
15:32:17      50.00   100   OTO
15:27:49      49.00   50   OTO
15:23:36      50.00   10   OTO
15:06:48      50.00   600   OTO
15:02:56      50.00   92   OTO
15:02:44      50.00   400   OTO
15:01:21      50.00   100   OTO
15:01:09      50.00   500   OTO
15:00:31      51.00   10   OTO
15:00:27      50.00   200   OTO
14:58:32      50.00   100   OTO
14:55:34      52.00   29   OTO
14:51:57      50.00   100   OTO
14:51:55      50.00   100   OTO
14:44:25      50.00   1   OTO
14:43:33      53.95   1   OTO
14:35:41      52.50   160   OTO
14:35:41      52.50   40   OTO
14:19:58      54.50   275   OTO
14:14:03      55.00   200   OTO
14:14:00      52.00   400   OTO
14:13:48      50.00   498   OTO

[oda.krell]

So... do I get this right, this is the new MtGox wall observer thread?  Including all the implications of that one?

Seriously though, good idea for a thread. Not sure yet what exactly to make of it, but it's another era for BTC, just like ASIC mining, or the previous reward halving. Interesting times.

[chmod755]

So... do I get this right, this is the new MtGox wall observer thread?  Including all the implications of that one?

Seriously though, good idea for a thread. Not sure yet what exactly to make of it, but it's another era for BTC, just like ASIC mining, or the previous reward halving. Interesting times.

It's certainly interesting. These types of investment vehicles are purely investments (not users) and they only adjust their prices after weekends and holidays while Bitcoin markets are open 24/7.

[bitbouillion]

BITCOIN INVT TR (GBTC) -Other OTC
49.00 Up 9.00(22.50%) 3:57PM EDT
Prev Close:   40.00
Open:   50.00
Volume:   14,807

Why would one buy a BTC for $490, when the price on US-regulated exchanges is $244?

Why is this same question asked every day?

Because there is no satisfying answer yet?

The tax argument is invalid.

As soon as COIN is trading, the ETF will buy and sell BTCs on a daily basis (since it is an open fund). COIN price will be connected to BTC price. So why would someone pay a 100% premium for GBTC?

Maybe some who speculate that the BTC price will be way above $500, when COIN launches and is unable to buy BTC on an exchange now?  

Or just gambling with a low liquidity stock to make some bucks?

[Chef Ramsay]

The facts are coming in and it's obvious that this initial ETF or whatever it is, is causing a bullish mindset in onlookers and will only increase when COIN comes to play. And, this is w/o any of these or the others coming on board imminently, stirring any demand or bullish fervor. We're gonna need the roof to be raised soon.

That's right I said it, and "bringing it back" also if you haven't heard it in awhile/decade.

[phoenix1]

The tax argument is invalid.

Absolutely
Nobody has even talked about the management fees either. Surely if you are looking for a tax efficient wrapper, you are considering it for the long-term. Maybe > 10 years. Maybe even 20 years.

IIRC fees are 2% annually and collected in BTC, assuming you start with 100BTC of exposure,

after 10 years, it is reduced to 81.7 BTC
after 20 years this becomes 66.76 BTC

JUST FROM THE DEDUCTION OF FEES !!

Now tell me why anyone would pay a premium to hold this product for the long term for tax reasons.
It makes no sense whatsoever

There is only one winner in the long run with this product, and it ain't Joe Public

[chmod755]

If you trade on GBTC you don't have to sign-up to a Bitcoin exchange.

Most pro traders prefer having a single interface that allows you to trade thousands of stocks, bonds, commodities, currencies etc. - trading would be very annoying if you had to sign up to a few hundred platforms

[Sitarow]

If you trade on GBTC you don't have to sign-up to a Bitcoin exchange.

Most pro traders prefer having a single interface that allows you to trade thousands of stocks, bonds, commodities, currencies etc. - trading would be very annoying if you had to sign up to a few hundred platforms

is somewhere explained how to participate in this GBTC?

So how can someone like us buy/sell GBTC there to fill this small orderbook?

Well, you can sell GBTC if you held SecondMarket BIT shares for at least one year (which I assume you don't since you ask). If you want to buy, you have to be an accredited investor in the US and you can buy the shares through your regular broker, I believe. If you don't know what an ETF is, chances are you won't be easily able to buy any shares - no offense.

I want to share this ^_^ comment here for those that may not be following the other GBTC conversations.



http://www.bitcointrust.co/


BIT INVESTMENT DETAILS

INVESTMENT MINIMUM:

$25,000
INVESTOR QUALIFICATION:

Accredited investor
ANNUAL ADMINISTRATIVE AND SAFEKEEPING FEE:

2.0%

Fact Sheet
http://bitcointrust.wpengine.netdna-cdn.com/wp-content/uploads/2015/03/Fact-Sheet_Mar15.pdf

Bitcointalk BIT information and discussion can be found here.
https://bitcointalk.org/index.php?topic=337486.0

P.S. Read the DISCLAIMERS:

This product represents a speculative investment and involves a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment. Any offering or solicitation will be made only to qualified accredited investors pursuant to a formal offering with additional documentation, all of which should be read in their entirety. Information provided about the Bitcoin Investment Trust (the “BIT”) is not intended to be, nor should it be construed or used as investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest in the BIT. Any offer or solicitation of an investment in the BIT may be made only by delivery of the BIT’s confidential offering documents to qualified accredited investors. You should rely solely on such offering documents in making any investment decision. An investment in the BIT is not suitable for all investors. The BIT is a private, unregistered investment vehicle and NOT subject to the same regulatory requirements as exchange traded funds or mutual funds, including the requirement to provide certain periodic and standardized pricing and valuation information to investors. There are substantial risks in investing in the BIT. You should note carefully the following:

The BIT represents a speculative investment and involves a high degree of risk. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in the BIT.

An investment in the BIT should be discretionary capital set aside strictly for speculative purposes.
An investment in the BIT is not suitable or desirable for all investors. Only qualified accredited investors may invest in the BIT.
The BIT’s offering documents have not been reviewed or approved by federal or state regulators.
An investment in the BIT will be illiquid and there may be significant restrictions on transferring interests in the BIT. There is no secondary market for an investor’s investment in the BIT and none may develop.
The BIT has limited operating history or performance.
The BIT’s sponsor has total authority over the BIT.
The BIT and its managers or advisors may rely on the trading expertise and experience of third-party managers or advisors, the identity of which may not be fully disclosed to investors.
The BIT may involve a complex tax structure, which should be reviewed carefully, and may involve structures or strategies that may cause delays in important tax information being sent to investors.
The BIT’s fees and expenses−which may be substantial regardless of any positive return− will offset the BIT’s trading profits.
The BIT and its managers/advisors may be subject to various conflicts of interest.

The above summary is not a complete list of the risks and other important disclosures involved in investing in the BIT and is subject to the more complete disclosures contained in the BIT’s confidential offering documents, which must be reviewed carefully.

[Chainsaw]

Sitarow, I moved up your summary of the BIT into the first reserved comment slot.
Squawk if you'd like any changes, or if you'd like me to remove it, or your attribution.

Thank you for putting that together.

I have a few more reserved slots, because I think there are a few community knowledge gaps.
The big one where I think Grayscale Invest could have done better is to provide a
"Trading GBTC For Dummies" page.

They have a unique (?) experience where their primary market base will be comprised of people previously inexperienced with OTC trading.
I went through this experience, learning on the first day, and trying to communicate and clarify those ambiguities.
Fear keeps people from trading.
I would have LOVED to see a page.
Top 5 commonly asked questions, with simple answers. Explaining the common misperceptions that seem like 'bugs'.  Explaining at a high level the relationship between $GBTC shares and the coins held in the BIT.
Not seeing your trades show up, or having questionable price-range displays. Perfectly normal for someone accustomed to OTC prices. Scary to someone inexperienced, and coming from a background of BTC where price discrepancies can be a canary for an exchange about to have big problems.

Sorry to state the obvious, but I'm too wordy to put together concise answers to "the big questions".
If someone thought it worth creating, that is what one of the other reserved spots was for.

[hector3115]

Oh just another day of Wall Street paying huge premiums for GBTC.  Nothing to get excited about of course!!!

[uvwvj]

Oh just another day of Wall Street paying huge premiums for GBTC.  Nothing to get excited about of course!!!

I will be really excited when I see more BTC being bought through Second Market with the thought that the $GBTC sells are doubling down on their number of BTC

[OgNasty]

Why would one buy a BTC for $490, when the price on US-regulated exchanges is $244?

The answer to this question is simple.  The only advantage in buying this fund over buying BTC straight is the ability to purchase in your tax shielded accounts.  Therefore, the logical explanation is that people are paying a premium to get exposure to tax free BTC gains.  If you believe the price is headed to $10,000, you would much rather purchase at $500 without tax liabilities than to purchase at $250 with tax liabilities.  That is the only logical explanation for the premium we are seeing.

Then we had to see these premiums on other funds too, like commodity or currency ETFs. E.g. I can put GLD easily into a tax shielded account, but not gold bullion. Nonetheless there is no premium on GLD.

You can buy physical gold in a tax shielded account.  

This is a moot point anyway as you can buy more than 2 bitcoins for one "GBTC" bitcoin and come ahead even in a taxed account as long as your taxes are less than 50%.
In addition, most retirement accounts are tax-deferred, not untaxable (except Roth where you are taxed ufront).

Some people would prefer not to pay taxes if given the choice, but you are correct with this thinking and that is why the premium is most likely a reflection of the tax rate of it's buyers with a little boost for those who are ignorant and hit buy without researching.  This is something I wasn't expecting, and if it holds true for COIN, things could get interesting, particularly for the ones who bought all the BTC for the fund.  It's starting to make sense now why the Winks didn't bat an eyelash at selling $1,000 BTC.  They're going to make an absolute killing on premiums and maintenance fees.  It's actually scary how rich they would become if BTC is truly successful in the long term.

[kingama]

Some people would prefer not to pay taxes if given the choice, but you are correct with this thinking and that is why the premium is most likely a reflection of the tax rate of it's buyers with a little boost for those who are ignorant and hit buy without researching.  This is something I wasn't expecting, and if it holds true for COIN, things could get interesting, particularly for the ones who bought all the BTC for the fund.  It's starting to make sense now why the Winks didn't bat an eyelash at selling $1,000 BTC.  They're going to make an absolute killing on premiums and maintenance fees.  It's actually scary how rich they would become if BTC is truly successful in the long term.

If COIN can achieve top brand status, they could very well make a killing. I'm not sure if it'll be socially on par with building a Facebook but it could end up more profitable in the long-term. The tax thing is likely a huge motivator. If you're paying capital gains of 15% or more if short term or in a greedy state, the price doesn't have to rise that much (in Bitcoin historical terms) for it to end up profitable versus buying BTC.

The trading experience is unique or maybe it isn't but others can confirm if they're seeing the same thing. My first trade went for more than I asked for though it was a small quantity limit order. The second was big enough but doesn't seem to have shown up all that clearly in the volume. Though I figured out who my orders would show up as, it seems they are only provided in aggregate with whoever is trying to trade through them and if I'm not the best bid or ask, my order is hidden.

[Chainsaw]

Only orders >=100 shares are 'guaranteed' to show, and even then, it is not certain.
The OTC rules are funny.
So your order was likely filled by grabbing shares offered at a better price than those listed.
Shares in the same position as yours.

Here is a historical log of all actual trades.

http://quotes.freerealtime.com/dl/frt/M?IM=quotes&type=Time%26Sales&SA=quotes&symbol=GBTC&qm_page=93229