Everything you wanted to know about Grayscale BTC Trust but were afraid to ask!

[fillippone]

The SEC continues to postpone making a decision on the consideration of the application for Grayscale Bitcoin ETF, and also does not exclude initiating proceedings to determine its justification for refusal, sending a second notice of the extension of the deadline.
https://cointelegraph.com/news/sec-delays-decisions-on-bitwise-and-grayscale-s-bitcoin-etfs

Despite this, Coinbase sent a letter to the SEC on Tuesday urging the agency to approve an application to convert Grayscale Bitcoin Trust into an ETF.
https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-20109603-263970.pdf

Even if ETF conversion appear to be written in the cards, market apparently is not betting on it.
GBTC discount is a measure of how much market believe in a future conversion: the wider the less probable:



The fact we are at historical widest discount is telling us ETF conversion appear to be priced to happen far in the future.

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[OgNasty]

The fact we are at historical widest discount is telling us ETF conversion appear to be priced to happen far in the future.

Seems like a great opportunity for anyone who sold the peaks to get funds into their retirement accounts.  I've always avoided this fund, because why not just own Bitcoin...  However, seeing this premium grow and knowing that a spot ETF is only a matter of time, it's beginning to look like an attractive option.  For those who believe that Bitcoin is going to go up from here it seems like this might not be the worst spot to nibble a bit on GBTC as opposed to buying spot, especially if as mentioned, you're doing it with tax sheltered accounts. 

[fillippone]

Gentle Reminder.
When GBTC closed their fund, their AUM was equal to 655,640 BTC.
Today the AUM is equal to 644,950 BTC.

GBTC had no outflow in the meantime.
The 10,650 BTC missing are actually GBTC fees.

Do you still think they like their trust to be converted into an ETF?

[Daltonik]

Morgan Stanley bought another 25,687 shares of GBTC during the third quarter and now owns 83,803 shares of Grayscale BTC as of October 31. Now the share of GBTC shares in Morgan Stanley Europe Opportunity Fund is 1% of the assets under its management.
https://twitter.com/MacroScope17/status/1475931126418006020

[fillippone]

Morgan Stanley bought another 25,687 shares of GBTC during the third quarter and now owns 83,803 shares of Grayscale BTC as of October 31.

MS is losing up his bet on GBTC eventually becoming a Spot ETF.
Apparently, they are on the counter side of the market, which expressing a 20% discount quote, is not betting on this event happening too soon.

[Daltonik]

Grayscale adjusted the portfolio of its DeFi fund so as of January 2022, the Flexa token (AMP) was added to it and Bancor (BNT) and UMA Protocol (UMA) were removed, so the DeFi fund now consists of nine tokens of the DeFi ecosystem.
https://www.globenewswire.com/en/news-release/2022/01/03/2360353/0/en/Grayscale-DeFi-Fund-and-Grayscale-Digital-Large-Cap-Fund-Announce-Quarterly-Rebalancing-of-Funds.html?linkId=146707269

[fillippone]

The drama is on.
Grayscale NAV Discount touched a new all-time low of -24%.



It's something difficult to explain to someone not exactly fluent in this weird crypto world.
Why on Earth should a Trust holding bitcoin trade with such a discount on NAV? I had a difficult time explaining this to a skeptic on bitcoin....and in the end, it wasn't too confident it wasn't an open scam.
 

[JayJuanGee]

The drama is on.
Grayscale NAV Discount touched a new all-time low of -24%.



It's something difficult to explain to someone not exactly fluent in this weird crypto world.
Why on Earth should a Trust holding bitcoin trade with such a discount on NAV? I had a difficult time explaining this to a skeptic on bitcoin....and in the end, it wasn't too confident it wasn't an open scam.

Something is unclear about your last sentence.

Who wasn't confident about whether GBTC was not an open scam?  You?  Your friend called "someone?" or somebody else?

[odolvlobo]

Why on Earth should a Trust holding bitcoin trade with such a discount on NAV?

The real question is why wouldn't someone buy the BTC in GBTC at a 24% discount.

One factor might be that traditional asset investors are less bullish about BTC than BTC investors, and BTC investors would rather hold their own BTC than let someone else hold it, even at a 24% discount.

Another might be that 24% is small in the long run, so there is little incentive to take advantage of the discount.

Since there is no redemption, there is no mechanism to ensure that the 24% discount will go to 0%. That makes it a risky arbitrage. I am playing the arbitrage game with the assumption that GBTC will be converted to an ETF soon, and so far it has been costly.

[fillippone]

Something is unclear about your last sentence.

Who wasn't confident about whether GBTC was not an open scam?  You?  Your friend called "someone?" or somebody else?

Dang, my broken English..
I wasn’t able to explain (in Italian) to that friend of mine how it is possible GBTC is trading at 20%+ discount to NAV without anyone closing this “arbitrage”.
My explanation on why this is not an “arbitrage” in the first place were enough to dismiss all this multimillionaire market as “scam”.

[JayJuanGee]

Something is unclear about your last sentence.

Who wasn't confident about whether GBTC was not an open scam?  You?  Your friend called "someone?" or somebody else?

Dang, my broken English..
I wasn’t able to explain (in Italian) to that friend of mine how it is possible GBTC is trading at 20%+ discount to NAV without anyone closing this “arbitrage”.
My explanation on why this is not an “arbitrage” in the first place were enough to dismiss all this multimillionaire market as “scam”.

I still do not get what you are saying exactly.

I am presuming that within that conversation you are the probitcoin person, and you are trying to explain in such a way that attempts to shed various good lights upon bitcoin.

Your friend (let's call him FoF - Friend of Fillippone) is somewhat of a typical sceptic, so maybe any kind of attempt that you attempt to make, he spins it in a way in which he cannot get over that some shennanigans might be going on... so maybe in that sense, he may well not even be trying very hard to "get bitcoin."

I do consider that frequently there are some weird things going on in bitcoin that are not really easy to explain, and maybe the persistent 20% plus discount with GBTC remains one of those difficult to explain phenomenons.

One thing that we know is that GBTC was amongst the ONLY official products that were available for some of the traditional funds or even individuals who have to comply with self-directed official sources.   That somewhat monopoly existed for more than 5 years, and still might even persist in some ways for folks trying to get spot exposure to BTC through their official custodian bitcoin channels, and so in that regard, GBTC/Grayscale had acquired more than 600k BTC over the past more than 7 years by having a kind of monopoly position, so even like you had mentioned on an ongoing basis, their ongoingly sucking out of a fee of 2% might justify that level of deviation from spot BTC price, and so the greater than 2% deviation from NAV does seem justifiable or rational.  

I don't really know how to explain the difference or even claim to really understand some of the financial products that are available except maybe to say that the market is ongoingly punishing GBTC once they transitioned into a competitive spot.. and GBTC is no longer competitive, but GBTC refuse to further reduce their fees.

We do know that rich peeps (whales) will also manipulate existing situations, dynamics or momentum for as long as they can to cause various kinds of questions and doubt about the value of the underlying (which also can cause normies/retail to act in irrational ways in that the manipulators can attempt to take advantage of such persistent irrationalities/arbitrage opportunities, so sure maybe there is some manipulation going on, too...

It may well be the case that some BIG players want to cause GBTC to suffer... Does it even matter?  It seems that at some point, the arb difference is going to revert to getting back to something like 2% (or if there might be some other liquidity issues that might justify a greater than 2% persistence in difference) unless we believe that such ongoing manipulation of GBTC could cause the whole GBTC fund to fail (which does not even seem that likely, but hey anything could happen, no?), and if that might be part of the goal of any kind of ongoing seemingly manipulation that might be taking place and seems to be persisting in a kind of irrational ongoing status.

For sure, you might already recognize that there is some kind of futility to try to talk rationally with FoF, too.  there are a lot of things going on in bitcoin besides a persistent irrational arbitrage opportunity of a BTC fund that has more than 600k BTC.

Does FoF just feel inclined to believe that the whole of BTC is a kind of fraud / scam?  Is FoF too smart for his own good and he does not even know the difference between bitcoin and various shitcoins?  Is FoF ongoingly framing bitcoin as if it were even close to mature as an asset class, when the fact of the matter remains that bitcoin likely has less than 1% world-wide adoption, even though bitcoin is being considered more and more within traditional financial circles and hoarded by the traditional financial players who seem to get it, while at the same time a whole hell of a lot of peeps within traditional financial circles still do not get bitcoin, and they seem to be "not getting it" on purpose..    

So we have some traditional players hoarding bitcoin, and we have some retail (likely OGs who get bitcoin) who are hoarding bitcoin, and perhaps some of the hoarding of bitcoin and some of the refusal of some HODLers to get shaken from their bitcoin causes bitcoin to seem BIGGer than it really is.. and seems like a scam or a religion.. or for those of us HODLing bitcoin waiting for all the newbies/normies to come into bitcoin, and sure, the newbies/normies can remain reluctant to come in to their own ongoing disadvantage and likely peril.  There's ONLY so much that can be done to onboard these kinds of folks who are ongoingly coming around to bitcoin.. little by little by little by little.. but I still refuse to concede that adoption in bitcoin if very high, even if there might be some pockets of cohorts that are identified to have higher levels of adoption that might even be getting into the double digit arenas (pockets of course).

Perhaps FoF is one of those who are purposefully NOT getting bitcoin because he is smarter than everyone else to his own disadvantage?  Yeah, go ahead FoF, and wait another one or two cycles for BTC to get further adoption with a likely larger variety of competitive financial products that are going to remove so many of the persistent and outrageous arbitrage opportunities, and at that that point, you still are going to likely advantage from bitcoin continuing to have UPside, with fewer downside risks. The seemingly outrageous ongoing arb opportunities likely continues to show how immature the bitcoin space/market continues to be, and should demonstrate to a lot of peeps, including FoF that there remain opportunities in bitcoin that relate to its very immature status.. and sure you can wait for bitcoin to grow up, which it likely will continue to grow up, but it is going up another 10x to 100x or even 1,000x in that time that you are waiting, and then at that point, BTC will be the mature asset that you want it to be. nice and stable, and maybe ONLY another 10x to go up after it goes up 1,000x from here.

Many of us who have been in bitcoin a long time have heard these various scam/manipulation/existence of irrationalities arguments from smarter than us people, and many of those smart people seem to be too smart for their own good (and maybe FoF fits in such groupening?), because the various crazy irrationalities/manipulations/scams that they are pointing out, to the extent that they understand the difference between bitcoin and shitcoins, remains potential red flags about possibly lowering your level of exposure to bitcoin to maybe somewhere lower on the 1% to 25% starting allocation range.. .and surely there is likely a decent amount of confidence and bullishness to get higher on the BTC allocation range such as within the higher 10% to 25% range, so those redflags about scams/manipulation/existence of irrationalities might be telling them to start with a lower level allocation into BTC, but many times, instead of starting with a lower allocation level into BTC these guys decide to stay on zero% and to wait it out.. and maybe get in later, perhaps when some of the irrationalities become fewer?.. which surely seems the wrong move and in the next 4-10 years, they will likely recognize their mistake of failing/refusing to get off zero.. even if they may well have pointed out the actual existence and persistence of some valid ongoing risks/concerns about various scams/manipulations/irrationalities that continue to exist in bitcoinlandia.

[fillippone]

JJGesque wall of text

This is why I like this forum.
See? You wrote nothing new to me, but you put all the aspects of the question in a very comprehensible and logical order.
I wasn’t able to do that, and my FoF, who is a Bitcoin skeptic, who bought and sold bitcoin once, dismissed the case as: “another proof that bitcoin market is an inflated nerd game that will eventually pop, dragging down the dumb last investors”.

If I weren’t risking my Opsec, I would make him read your post.

Trying to organise my thought on bitcoin is one of the main reasons why I am on this forum, apparently I still have a lot to learn.

[JayJuanGee]

JJGesque wall of text

This is why I like this forum.
See? You wrote nothing new to me, but you put all the aspects of the question in a very comprehensible and logical order.
I wasn’t able to do that, and my FoF, who is a Bitcoin skeptic, who bought and sold bitcoin once, dismissed the case as: “another proof that bitcoin market is an inflated nerd game that will eventually pop, dragging down the dumb last investors”.

If I weren’t risking my Opsec, I would make him read your post.

Trying to organise my thought on bitcoin is one of the main reasons why I am on this forum, apparently I still have a lot to learn.

I try to not mix any of my posts with real world, too.  Even though sometimes, I will take some snippets and share with real life people.. sometimes those snippets could lead to me if the person did a bit of a google search on the words to find their source.

I find some of these smart people to be problematic too, and sometimes they do get some bitcoin exposure without really saying anything.. and then maybe saying:  "I have one bitcoin blah blah blah."  And some later date, they disclose that they sold some or all of their BTC holdings for smart "reasons."   

I have a certain relative that does this kind of "getting into bitcoin" from time to time, and at the end of 2018, I found out that he sold his one bitcoin as the ONLY assets that he "lost" money, but he sold such bitcoin because he wanted to be able to take a loss on his taxes on something.  He said something about "never again," which was so contrary to any kind of suggestion that I had made about needs to be persistent with bitcoin, and I am not even that secret about my own bitcoin holdings (except for not revealing quantities) so that he realizes that I am at least 43x in profits.. and sure at various points in 2018 I might have gotten down to 3x or 4x in profits and then there have been ups and downs, but in the long term the profits have been up. 

He also knows that I had been buying bitcoin in 2014, 2015 and 2016, and for a considerable amount of that time, my BTC portfolio was quite greatly in the negative, even while I was recommending quite regular to many of my acquaintances/relatives that they should be DCAing into BTC, even with just small amounts of money. ... so in some sense there were periods of time in which several of these folks could have gotten into BTC at lower average prices than my own average price per BTC.  My recommendations just would not sink in.. and similarly, when some of these guys admit that they should have listened to me, and I repeat the same thing.... over and over and over.. and I say that bitcoin's investment thesis is not any weaker than it was in 2014, 2015 and 2016, even though the price has gone up quite a bit since then.. but they cannot get over it.. they cannot get off zero on a kind of consistent and ongoing basis rather than merely playing the "in and out" aspects of bitcoin.

By the way, I cannot remember the one relative's exact circumstances in which I was telling him about BTC, and I believe that it was sometime in mid-2017 that he had told me that he had gotten into GBTC and then he had gotten out.   When he was "in" I told him that it was better than nothing, but I believe that he should hold the BTC directly, and if he had some GBTC, he could also just hold both spot BTC and GBTC.  He told me that he had some kind of a self-directed IRA, and with that fund, GBTC was a permissible investment, but direct buying of BTC would not be acceptable to use with that fund.  So surely my suggestion was for him to buy BTC outside of that self-directed IRA account, and largely I could understand some of his reluctance.. and I do continue to lecture that particular relative about his continued in and out of bitcoin, that largely emphasizes his being out of BTC...and he thinks that he is being smarter about bitcoin, and surely sometimes he does get into bitcoin, but he seems to be unable to hang onto any kind of volatility, so he quickly gets out when there is any kind of question that UPpity is going to stop.. I would imagine that he is bothered by the ongoing negative 20% from NAV of GBTC, even though I don't follow his every move..except that within about the last year, he told me how smart he was by getting into some shitcoin (not sure if I should name such shitcoin).

[fillippone]

That makes it a risky arbitrage.

A risky arbitrage is not an arbitrage in the first place, it is a bet, as an arbitrage involves no risk.

So I think this discount measures the market view on GBTC being converted into an ETF. The higher the probability, the lower the discount, as you correctly stated, at the time of the conversion the discount should be zero.

So, the only thing I can say is: at the moment doesn’t see the conversion happening, and actually see this event even more distant in the future.
May we say that the conversion should happen later than 12 years in the future as the discount is more than 12 times the 2% fees?

[fillippone]

Another Day, another record for Grayscale.
DIscount to NAV at a historic low just shy of 30%:


My spies on the financial world sent me a Bloomberg article about this discount.
I am going to publish this article soon.
Very interesting.

[franky1]

Why on Earth should a Trust holding bitcoin trade with such a discount on NAV?

The real question is why wouldn't someone buy the BTC in GBTC at a 24% discount.

One factor might be that traditional asset investors are less bullish about BTC than BTC investors, and BTC investors would rather hold their own BTC than let someone else hold it, even at a 24% discount.

Another might be that 24% is small in the long run, so there is little incentive to take advantage of the discount.

Since there is no redemption, there is no mechanism to ensure that the 24% discount will go to 0%. That makes it a risky arbitrage. I am playing the arbitrage game with the assumption that GBTC will be converted to an ETF soon, and so far it has been costly.

arbitrage is purely about moving an asset from one market to sell on another market.
arbitrage is not about having an asset locked into a market where its not redeemable to then move to another market.
in short if GBTC cant be moved. there is no arbitrage opportunity so no arbitrage risk.

That makes it a risky arbitrage.

A risky arbitrage is not an arbitrage in the first place, it is a bet, as an arbitrage involves no risk.

an arbitrage risk is where an asset is redeemable(movable) to other markets. but the risk comes in the delay of the movement which then gives time for the other market to changes its price point where the opportunity is lost in selling for more/buying for less, due to the other market 'correcting' before your deposit.
arbitrage is not a term to be used to buy on one market. and then months later sell elsewhere.. as thats just general trading. arbitrage is a short lived event, part of day trading.(within milliseconds to an hour at most)

arbitrage risks were higher in the days of btc-e and MTGOX when it needed to withdraw coin(confirm) and deposit coin(confirm) meaning it took 20mins+ to arbitrage.
this was then less risky when they introduced 'mtgox/btc-e keys' to reserve swap in seconds..
(i used to love arbitraging the different markets, back in the day when it was fun. easy money)

and now many exchanges use stable coins and sidechains/altnets for instant exchange-exchange swaps.

meaning if exchange A has coins at 2% less than exchange B. someone can buy on A and sell on B in seconds and not have arbitrage risk

[fillippone]

meaning if exchange A has coins at 2% less than exchange B. someone can buy on A and sell on B in seconds and not have arbitrage risk

An arbitrage would be:
Borrow some coins
Sell coins on B
Move liquidity From B to A
Use liquidity on A to Buy back coins
Give back the coins and keep the change.

This would be an arbitrage,
provided that you can move liquidity and coins between exchange and you can finance your coins at a reasonable costs (which would erode the P&L pf your arbitrage) .

Arbitrage involves:
No risk
No capital


Everything else is trading, be it milliseconds, days or weeks.
I seldom see any arbitrage at all, especially in crypto markets.
Usually I see trades, maybe juicy trades, rarely proper arbitrages.

[odolvlobo]

Arbitrage involves:
No risk
No capital

I think that your idea of arbitrage is idealistic. In reality, arbitrage always involves some risk and capital.

In your example, capital is required to borrow the coins.

In your example, there is risk in two steps - "Move liquidity From B to A" and "Use liquidity on A to Buy back coins". The risk is that in the time that those steps take to execute the price could change.

[franky1]

meaning if exchange A has coins at 2% less than exchange B. someone can buy on A and sell on B in seconds and not have arbitrage risk

An arbitrage would be:
Borrow some coins
Sell coins on B
Move liquidity From B to A
Use liquidity on A to Buy back coins
Give back the coins and keep the change.

no, thats called "shorting"
borrowing(short)
short: borrow asset to sell then buy cheaper to repay the loaned asset and keep the extra

or the opposite
long: buy low to sell higher and keep the profits of the sell

the arbitrage is the movement between the exchanges which can be used both in cases of your own funds (long) or borrowed(short)

yes you can also short by selling the asset in one exchange. and hold there wait for a dip and buy back in, in the same exchange to offer back the initial asset amount to then keep the difference.

but arbitrage is the use of 2 exchanges to take advantage of the difference in market price between the 2. whether its long or short

[Daltonik]

According to the SEC report, the investment firm Kingfisher Capital acquired 93,463 shares of Bitcoin trust (GBTC) from Grayscale Investments during Q4 2021. Thus, as of December 31, Kingfisher Capital had 114,350 GBTC, which were valued at $3.9 million. https://www.sec.gov/edgar/search/#/q=bitcoin&dateRange=custom&entityName=Kingfisher&startdt=2022-01-25&enddt=2022-01-25