Thread by @Felipether

3 hard truths about Grayscale:

1 - They're NOT damn gobbling up all of BTC's supply.

~80% of the money it reportedly pulls in do not make up for any buy pressure.

(proof attached) 👇

In-kind contribution = a share is created, priced at NAV, eligible for tax-benefits + for resale on secondary markets after 6mo., priced at NAV + premium

That's a fancy way of saying you can inject BTC into a time machine and withdrawal it 6 months later with a ~20% surplus.

(You = qualified investor, 50K min)

Truth nº 2:

the premium is not irrational. And YES it IS "free" money for whoever has capital affordances to arb it.

To neutralize the direction of the trade (lock the premium), one shorts the public share while creating primary shares.

This chart (K. Toci, 2019) allows us to infer that whoever is borrowing 8% of the circulating supply of gBTC (at peak of short interest) has a useful end for it.

For comparison, BTC has 0.5-1% of short interest (futures) relative to market cap, at any given time.

OK, this is a bit "apple to oranges", but, between us, nobody borrows gBTC to impress a date.

BTW, fun fact: there's NO REDEMPTION mechanism in gBTC.

🪄 The billions it holds are ultimately black-holed to Grayscale.

Can anyone confirm or counter this? I'm not sure 🤔

Truth nº 3:

gBTC is NOT a BAD deal (or a "dump") to retail investors.

A ~20% premium is reasonable if your exposure to BTC gets a tax deduction of by... 20% (15% if <500k).

You can hold gBTC on an IRA or 401k (accounts w/ fiscal benefits). Can't do that with Coinbase BTCs...

...these will incur capital gains sooner or later. If you hold BTC on Coinbase, it'll eventually be slashed by 15%-20%.

Whether you use it to buy coffee on Starbucks, transfer to cold storage, or pick up some altcoins: any harsh move triggers a taxable event.

One may...

...have the impression that investing via Coinbase is a "purer" way of dealing with crypto (vs. financial contracts on brokerage accounts).

In fact, Coinbase Custody keeps Grayscale BTC's (and DCG has big stakes in both).

You're not missing much by feeding Barry over Brian.

By the way, another fun fact: these 2, combined, probably control more BTC than Patoshi.

😳

So, who competes with gBTC?

When and how will the premium be "crushed"?

Competition:

Coinshares;
Van Eck/SolidX;
Edgy European/Singaporian ETPs;
Even CME futures for a subset of customers.

None has the blatantly recognisable "BTC" in its ticker stamped across the biggest brokers in America.

❓ What about an ETF?

Seems to me the SEC is waiting for something we do not know of (or know won't happen), to green light one.

What most fail to realise is that "everything else" besides an ETF has been built.

One can trade hash futures. Hold BTC on an IRA. Short on CME.

❓ Why doEsN't the PrIce pUmP iF tHEy'Re buYiNg Too mUch?

The question always comes back.

Think of this: BitMex alone trades in a day more than the AUM of **all** the Grayscale funds combined.

Bitcoiners have a knack for supply-driven narratives.

Halvings, stock-to-flow, Grayscale's black hole.

Some forget this is the part of the equation that's *less* exposed to change.

The weighty variable is on the other side. Bitcoin pumps with demand.

❓Does the premium predict institutional interest?

Dunno. I think it reflects a mix of institutional interest, retail interest and short-term expectations.

Returns on the premium (which is obv. not stationary itself) are positively correlated with BTC price returns (1d).

It's not significant though. And fades consistently with progressing lags in returns (30d, 90d, 180d).

One must remember there's exogenous factors in play. If the fund halts the creation of new shares for a while, the premium reacts, tangentially to what happens to BTC's price.

Obviously, none of the above is advice in any form.

🔚