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Alpha Zeta Profile picture
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30 Jun 20, 9 tweets, 2 min read
GBTC Premium to BTC at 8.67%. Significantly lower than the historical average.

How GBTC arbitrage works? 👇 Image
GBTC gives an option for investors to contribute "in-kind". This means that you can buy BTC at market price and convert into an instrument that trades at a premium. This premium oscillates but it's been >20% recently. So, theoretically investors could "arb" this spead.
In summary, at trade date 0, investor would for example:
1) Buy $10,000 worth of BTC
2) Short ~$10,000 + premium worth of GBTC

How do you short GBTC?
You can borrow shares at some of the large brokerage houses and sell them at market. This usually costs a daily borrow rate (currently around 6% per annum).
So, when BTC is converted to GBTC the investor would be long GBTC at 10,000 and short at 10,000 + premium - carry cost. Rough example below.
Notice that the investor is indifferent if BTC goes up or down. His bet is purely on spread. Image
To close the trade the investor would sell his newly converted GBTC and buy GBTC to close his short.

A low premium means that there are many investors arbing this spread. At 8% it doesn't seem to be profitable when including transaction costs and cost of carry to short GBTC.
Is this bullish or bearish for BTC?
Unclear. Historically a low GBTC premium has coincided with short term bottoms in price but I'm unsure why.
Chart Source:
ycharts.com/companies/GBTC…
Many asked about the reasons behind the premium and if it should exist. I've written another thread that may be helpful:

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More from @alphaazeta

Alpha Zeta Profile picture
18 May
My view on altcoins is simple.
I’ve spent years learning about Bitcoin. Read a lot, watched more videos than I’m willing to admit, listened to podcasts pretty much every day.
I also learned to code so I could read the Bitcoin code. I had a paranoia about back doors that ... 1/n
... only went away after being able to audit the open source code. I researched how to safely compile the code and how to verify signatures. Also made a few modifications to see what would happen with rogue
Built several small apps - best way to learn is to do in my opinion.
2/n
Then there’s the game theory, economics and philosophy part. I have a background in economics and finance. I traded on some of the largest trading floors at Wall Street. But on game theory and philosophy there was (and is) lots to learn.

3/n
Read 11 tweets
Alpha Zeta Profile picture
30 Jan
A threat on potential risks on this market and why we may see more asset price volatility and failing companies.

I haven't been involved in swap markets for a long time and I am admittedly making a few leaps here to draw some conclusions but I don't think these are too off.
Let's use Robinhood and their "crypto" platform as an example. A user logs into their RH account and buys $500 worth of bitcoin. What happens next?
Most would intuitively think:
"Well... Of course RH goes out, finds a seller of the same amount of bitcoin and holds those bitcoins in their custody under my name."
Right?
Nope...
Read 23 tweets
Alpha Zeta Profile picture
27 Jan
GBTC premium keeps getting crushed and currently sitting close to historical low levels.

Not going to get into details but there’s probably a massive unwind of carry trade happening.

Cont... Image
I’ve been a critic of services like @BlockFi for a while. Not getting too much into that. And the below is a guess on my part.

But how do you think they can pay an interest on the #btc you deposit in their custody?

coindesk.com/blockfi-takes-…
Given the article above, you can speculate that they take your Bitcoin, convert into GBTC, wait for the lockup period (6 months) and capture the premium.

More info on that trade below:

skew.com/blog/connectin….
Read 6 tweets
Alpha Zeta Profile picture
18 May 20
I've been meaning to write some thoughts about @grayscaleinvest $GBTC for a while.

Buying $GBTC vs #Bitcoin is not an obvious decision. It depends a lot on your tax situation + familiarity with tech.

This is not tax or financial advice. But a few thoughts below.
$GBTC:
- 2% annual fee (argh!)
- 18% premium to BTC
- If placed in IRA, accrues Tax Free
- Not your keys, Fraud risk
- Commission Free on many platforms
- Easy execution
#BTC:
- No annual fee
- No premium
- Potential for capital gains tax (assume 15% for now)
- Your keys (Big one)
- Exchange commissions + bid/ask spread - between 1% and 3% (avg)
Read 8 tweets
Alpha Zeta Profile picture
11 May 19
0/ This whole bear market I've been repeating that Bitcoin prices move quickly, unexpectedly and in large jumps. If you are following any of the technical analysis talking heads or if you think you have an edge in doing TA yourself, take a few moments to analyze historical prices
1/ The chart below, for example, has data from 1/1/15. The scatter plot shows daily returns. Do you see how many of those are above 7%?
No need to go far, remember 4/1 when BTC moved from 4,150 to 4,900?
How many "experts" saw that coming? Image
2/ When markets go down, you often hear: "well... I'll just take my money and wait on the sidelines"
The opportunity cost is massive. I remember in 2008, after the crisis, when many investors were on the sidelines and only came back after 2011 at much higher prices.
Read 12 tweets
Alpha Zeta Profile picture
6 Mar 19
0/ I’ll try to make a case on why using @therealblockfi interest account is one of the worst decisions a BTC investor can make. I’m all for innovation and new products in the BTC space. But, in my view, this is highway robbery + exposes investors to a risk they don’t understand👇🏻
1/ Let’s start with the 6% yield. This is pre-tax. There’s enough here to be concerned that this could be taxed as ordinary income (0% to 37%). @ 37% - the aft tax yield = 3.78% NOT 6%.
2/ even pre-tax, let’s use 1 month treasuries as a comparison paying ~2.4%. On @therealblockfi you receive a premium of 3.6% above treasuries (“risk free”). Is 360bps enough to compensate for BlockFi’s credit risk you will be taking?
Read 11 tweets

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