GBTC Bitcoin Investment Trust Observer

[Chainsaw]

http://finance.yahoo.com/news/grayscale-investments-llc-ceases-private-140000550.html

I'm unclear on the meaning of this.
Are they suggesting that GBTC will use a different mechanism for purchasing shares going forward, or that they will no longer be maintaining the 10:1 ratio and instead letting the investment center around the number of coins currently held by the trust?

They appear to be doing some kind of IPO of up to $500,000,000 dollar value, according to the document, and changing the way the shares work.

https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm

Prior to this offering, Shares were distributed by Genesis Global Trading Inc. (“Genesis”), acting as the initial purchaser and sole Authorized Participant, through sales in private placement transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Rule 506(c) thereunder. After this offering, Shares will be distributed by Authorized Participants. Genesis will not act as an Authorized Participant in connection with the public offering of the Shares. It is expected that the Shares will be sold to the public at varying prices to be determined by reference to, among other considerations, the price of the bitcoins represented by each Share and the trading price of the Shares on NYSE Arca at the time of each sale. Shares registered hereby are of the same class and will have the same rights as the Shares distributed prior to this offering.

In exchange for issuing and redeeming Baskets of Shares, the Trust will receive from, or deliver to, Authorized Participants or Liquidity Providers (as defined herein) a number of bitcoins equal to the value of Shares in a Basket. As of the date of this prospectus, each Share represents approximately 0.094 of a bitcoin.

The Authorized Participants will not receive a selling commission or discount from the Trust in consideration of the distribution of Shares to the public through sale on NYSE Arca. Purchasers of Shares may be subject to customary brokerage charges. Investors should review the terms of their brokerage accounts for details on applicable charges. The Authorized Participants may receive commissions or fees from investors who purchase Shares offered hereby through their commission and fee-based brokerage accounts.

Thank you.  My major concern had been that the nature of the investment had changed, in that they would no longer be maintaining the ratio. On closer reading, that doesn't seem to be the case.

An attempted distillation:
-The price/share ratio is intended to remain the same.
-The mechanism for issuing new shares was reliant solely on Genesis Global Trading, and is now being opened to anyone qualifying as an Authorized Participant.
-Authorized Participants are not rewarded for selling NYSE shares, but are rewarded by selling coins into the Trust.

Increasing buying options while rewarding those offering the coins both seem net positive.

If I got anything wrong, please correct - the formal language is tricky (for me) to parse accurately.

[mmortal03]

Lowest diff in almost a year.

[Biodom]

Lowest diff in almost a year.

...suggesting that COIN and XBTC ETFs might have a chance.
GBTC price is lower now than it was when BTC was $600-700 last summer.
EDIT: some additional info that just came out
http://www.marketwatch.com/story/path-to-bitcoin-etf-still-uncertain-but-may-be-easier-under-trump-2017-01-30

[mmortal03]

The last 3 months, GBTC has gone up 19.61%, while BTC has gone up 57.33%.
The last year, GBTC has gone up 68.67%, while BTC has gone up 119.65%.

...suggesting that COIN and XBTC ETFs might have a chance.

I don't know about that. Why would someone sell their shares of GBTC based on that premise, given that the underlying asset that they hold would be worth a lot more on the news of COIN or XBTC being approved?

[Biodom]

The last 3 months, GBTC has gone up 19.61%, while BTC has gone up 57.33%.
The last year, GBTC has gone up 68.67%, while BTC has gone up 119.65%.

...suggesting that COIN and XBTC ETFs might have a chance.

I don't know about that. Why would someone sell their shares of GBTC based on that premise, given that the underlying asset that they hold would be worth a lot more on the news of COIN or XBTC being approved?

no, the ideal trade based on that premise would have looked like this (last July when premium was the highest):

Short GBTC, buy the equivalent $$ amount of bitcoin.
Almost no risk if you know that ETF is going to be approved eventually.
As you yourself pointed, that trade would have made almost 51% in a year (119.65-68.67) with almost ZERO risk.

[notme]

The last 3 months, GBTC has gone up 19.61%, while BTC has gone up 57.33%.
The last year, GBTC has gone up 68.67%, while BTC has gone up 119.65%.

...suggesting that COIN and XBTC ETFs might have a chance.

I don't know about that. Why would someone sell their shares of GBTC based on that premise, given that the underlying asset that they hold would be worth a lot more on the news of COIN or XBTC being approved?

no, the ideal trade based on that premise would have looked like this (last July when premium was the highest):

Short GBTC, buy the equivalent $$ amount of bitcoin.
Almost no risk if you know that ETF is going to be approved eventually.
As you yourself pointed, that trade would have made almost 51% in a year (119.65-68.67) with almost ZERO risk.

AFAIK, GBTC can't be shorted because it is an OTC product, not exchange listed.  The only way to make that trade is if you already hold some.

[Killerpotleaf]

The last 3 months, GBTC has gone up 19.61%, while BTC has gone up 57.33%.
The last year, GBTC has gone up 68.67%, while BTC has gone up 119.65%.

...suggesting that COIN and XBTC ETFs might have a chance.

I don't know about that. Why would someone sell their shares of GBTC based on that premise, given that the underlying asset that they hold would be worth a lot more on the news of COIN or XBTC being approved?

no, the ideal trade based on that premise would have looked like this (last July when premium was the highest):

Short GBTC, buy the equivalent $$ amount of bitcoin.
Almost no risk if you know that ETF is going to be approved eventually.
As you yourself pointed, that trade would have made almost 51% in a year (119.65-68.67) with almost ZERO risk.

AFAIK, GBTC can't be shorted because it is an OTC product, not exchange listed.  The only way to make that trade is if you already hold some.

besides the ETF will carry the same premiums

[Biodom]

besides the ETF will carry the same premiums

Of course, not.
GBTC had more than 100% premium at the point where the trade I described had the most sense (last July).
ETF would have low premium (most likely), similar to GLD/gold.

[mmortal03]

We're approaching the lowest % diff ever. If we get below the lowest in a year (8.68%, 2016/02/05), then you have to go back to October 2015 for lower days. The lowest ever was October 28th, 2015, where it got down to -4.32%.

[notme]

We're approaching the lowest % diff ever. If we get below the lowest in a year (8.68%, 2016/02/05), then you have to go back to October 2015 for lower days. The lowest ever was October 28th, 2015, where it got down to -4.32%.

My math comes out to 16.3% premium.  If you are assuming 1/10th BTC / share that is no longer the case.  Current BTC / share is 0.09350819.

https://grayscale.co/bitcoin-investment-trust/

[mmortal03]

We're approaching the lowest % diff ever. If we get below the lowest in a year (8.68%, 2016/02/05), then you have to go back to October 2015 for lower days. The lowest ever was October 28th, 2015, where it got down to -4.32%.

My math comes out to 16.3% premium.  If you are assuming 1/10th BTC / share that is no longer the case.  Current BTC / share is 0.09350819.

https://grayscale.co/bitcoin-investment-trust/

You're right. I've been meaning to incorporate the BTC per share value into my spreadsheet. I've just updated it to account for this. To revise the above, extrapolating backwards from the January 31st BTC per share, the lowest in a year was still 2016/02/05, but it was a 13.89% premium. The lowest ever was also still the above date of October 28th, 2015, but it only got down to -0.29%.

[mmortal03]

http://www.marketwatch.com/story/bitcoin-investors-bet-the-sec-will-approve-cryptocurrency-etf-a-view-at-odds-with-analysts-2017-02-13

Despite skepticism from prominent lawyers and Wall Street analysts, bitcoin investors are increasingly confident the Securities and Exchange Commission will approve at least one of the three proposed bitcoin-focused exchange-traded funds currently under consideration.

Pricing in futures contracts traded on BitMEX, a popular exchange that is incorporated in the Republic of Seychelles, as well as the rapidly declining premium for shares of the Grayscale Bitcoin Trust traded on the secondary market suggest that some market participants are bracing for approval, said Spencer Bogart, an analyst at Needham & Co. Bogart is one of the few Wall Street analysts who cover Bitcoin.

The trust’s premium over bitcoin’s net asset value has shrunk from about 42.21% in early January to about 13% in recent trade, according to data provided by Grayscale.

The shrinking premium suggests investors are less willing to pay for shares of the trust because they expect one of the ETFs to be approved in the near future, Bogart said. Shares of a bitcoin ETF would likely trade much closer to the cryptocurrency’s net asset value, bitcoin watchers said.

The trading activity is at odds with the likelihood of approval tabulated by Bogart, who places it at less than 25%. Last month, a former lawyer for Gemini Trading, the bitcoin exchange operated by Tyler and Cameron Winklevoss, said he believed the SEC wouldn't approve the creation of a bitcoin exchange-traded fund. The SEC has said it would issue a ruling on the Winklevoss’s proposed bitcoin ETF, known as the Winklevoss Bitcoin Trust, by March 11.

[mmortal03]

Here's a direct link to the Needham/Bogart report: https://www.scribd.com/document/339207005/Bitcoin-ETF-Digging-Deeper-on-Probability-and-Potential-Effect-1

[mmortal03]

Today we could hit the third lowest percent difference ever at close. GBTC would have to close below a 3.48% premium.

[notme]

Today we could hit the third lowest percent difference ever at close. GBTC would have to close below a 3.48% premium.

Using $1190 as the current btc price, $115 as the gbtc price, and 0.09336483 as the current btc/share, the premium is 3.5%.

[mmortal03]

Today we could hit the third lowest percent difference ever at close. GBTC would have to close below a 3.48% premium.

Using $1190 as the current btc price, $115 as the gbtc price, and 0.09336483 as the current btc/share, the premium is 3.5%.

Yep, we barely missed it if you use those as your figures, with one share currently equal to 0.09336483 BTC.

Since my previous source of daily BTC prices stopped being updated back in October, I started using the BitStamp Weighted Price from the following data set (one could also use the closing price from there, but the weighted figures matched my previous source slightly better): https://www.quandl.com/data/BCHARTS/BITSTAMPUSD-Bitcoin-Markets-bitstampUSD

Based on that, you get:  (115 - (0.09336483 * 1192.35)) / (0.09336483 * 1192.35) = 0.0330, or 3.3%, slightly beating October 26th, 2015, to take third lowest.

[mmortal03]

We might break negative on the premium soon. Watching the intra-day price moves today it touched something like 1.65%.

[marcus_of_augustus]

We might break negative on the premium soon. Watching the intra-day price moves today it touched something like 1.65%.

This seems extreme, especially since premium has been so high in the past (up to 80% wasn't it?).

Any ideas what's going on here, I know ETF is muted as a reason but could it be something else also?

[notme]

We might break negative on the premium soon. Watching the intra-day price moves today it touched something like 1.65%.

This seems extreme, especially since premium has been so high in the past (up to 80% wasn't it?).

Any ideas what's going on here, I know ETF is muted as a reason but could it be something else also?

Just COIN as far as I know.  However, consider that COIN will be a stable 0.01/share and should track very closely.  Since GBTC has fees that eat at the btc/share, it makes sense that in a competitive market it would indeed trade at a discount.

[mmortal03]

We might break negative on the premium soon. Watching the intra-day price moves today it touched something like 1.65%.

This seems extreme, especially since premium has been so high in the past (up to 80% wasn't it?).

Any ideas what's going on here, I know ETF is muted as a reason but could it be something else also?

Well, at least we avoided it today, but yeah, it's only happened once before, October 28th, 2015, where it dipped to negative 0.29% on close. The high in the recent past got up to an almost 100% premium, back in June of last year.

First off, GBTC isn't built to perfectly track the BTC price, given the year holding period before the shares can be sold OTC. Also, it doesn't have the same amount of volume/liquidity. My take is that some whales have decided to sell off whatever GBTC premium that there is on the market while they can, given that, if COIN is approved, there will be less of a premium. They might also be doing some sort of longer term arbitrage, where they're finally able to sell their shares, and they've decided to do so and then buy BTC directly.

Others have made the point that GBTC shouldn't significantly trade below the value of the underlying BTC for any large timeframe, because the shares could be redeemed for actual BTC if necessary, at least that was my understanding, but I'd like confirmation on that. If it's true, I'd also like to know how tedious that process is, which, if difficult, could further contribute to individuals selling below fair value to liquidate their holdings. Some shareholders also might not be able to take on the underlying BTC for technical reasons or tax account reasons, depending on how they're held.

One other reason that could cause GBTC to sell at lower than the underlying market value would be if the underlying BTC that's held at Xapo ever got hacked!