Thread by @AllenAu11

Why is $GBTC still trading at a discount? Would it trade back at a premium? Will we see a blow-off top for $GBTC as #BTC’s price goes parabolic?

TLDR: Long story. No, unless certain conditions prevail, but not this year. Yes, projected peak $GBTC price: $150-$240.

If you don't know much about $GBTC (Grayscale #Bitcoin Trust), you could read the following tweet about $GBTC as a quick refresher.

https://twitter.com/AllenAu11/status/1446428423295946753

1/ Why is $GBTC trading at a discount?
$GBTC will be in discount when its price is trading lower than its #BTC holdings/share outstanding. Simply, investors are unwilling to buy $GBTC unless its value its lower relative to BTC.

1a/ $GBTC is a closed-end fund. Stock close-end funds typically trade at a discount. In an ideal situation, $GBTC's premium is -2%, which is its management fee.

In the past, when $GBTC was the only proxy to #BTC investment, its premium went up >100% as retail FOMO into it.

1b/ $GBTC's premium is often used as a sentiment indicator of #BTC. When it is positive (+ve) & increasing, #BTC's price is expected to go up. When it is negative (-ve) & decreasing, BTC's price will drop. This hasn't worked well since Grayscale halted private placement of $GBTC.

1c/ So why?
- Competition from #BTC trusts w/ low mgmt fees & Canadian ETFs
- No clear path of when & how $GBTC could be converted into an ETF
- Grayscale has closed private placement for $GBTC so no new demand
- Risk-free arbitrage is gone. Better w/ contango of CME BTC futures

1d/
- SEC could approve #BTC futures ETFs so some institutions exit their $GBTC positions
- There're many ways to buy spot & custody #BTC via Paypal, Cash App, etc.
- NYDIG helps institutions on-board BTC directly
- Proxy BTC investments like $MSTR & mining stocks (eg. $MARA)

2a/ Would $GBTC trade at a premium again?
With so much headwind (see #1), I don't see $GBTC trade at a premium during the current #BTC bull phase. This is not to say, its price won't go up a lot as BTC does, just not as much.

2b/ As $GBTC is in deep -ve discount, Grayscale won't open it for private placements as investors can buy $GBTC at discount to Net Asset Value (NAV) at OTCQX exchange rather than at NAV. This takes away a big chunk of demand for $GBTC - a positive driver of its premium.

2c/ Once SEC approves a physical BTC-backed ETF, traders would buy $GBTC in expectation that it'll be converted into an ETF, its premium could flip >0 or even +ve.

If $GBTC is converted into an ETF, its premium will be self-regulating & won't skew in either direction for long.

2d/ When though? Not this year as SEC favors #BTC futures ETFs filed under the 40 Act so these will be approved first, probably in 2021.

There are 10+ physically-backed #BTC ETFs on application & SEC seems to be kicking the approval can of these down the road. $GBTC has to wait!

3/ Would $GBTC's price have a blow-off top as #BTC's price goes parabolic?

Yes, looking at the chart below, we can see the price action of $GBTC follows that of BTC almost in lockstep.

3a/ In the last cycle, #BTC performed better than $GBTC from the halving to the mid-cycle correction, but the opposite is true after the mid-cycle correction.

BTC GBTC
Halving- Mid-Cycle: 194% 113%
Mid-Cycle- Peak: 906% 1297%

3b/ In the current cycle, #BTC has performed better than $GBTC from the halving low to the mid-cycle correction low & continue to do so.

BTC GBTC
Halving- Mid-Cycle: 263% 135%
Mid-Cycle- Now: 90% 76%

3c/ Also, #BTC has performed better than $GBTC from the halving low to their respective interim tops.

BTC GBTC
Halving Low-
Interim Top: 704% 499%

Note the interim top of GBTC happened 2 mo. ahead of BTC. Will this happen for the cycle peak?

3d/ Comparing the performance of #BTC & $GBTC from mid-cycle correction low to the #CTM Wave 1 low, #BTC has performed a tad better than $GBTC in this cycle, which is the opposite of last cycle.

BTC GBTC
2017: 56% 98%
2021: 35% 34%

3d/ With the imminent approval of a #BTC futures ETF by the SEC & given that $GBTC is in discount & waning retail interest in it, it is unclear how $GBTC will perform better than BTC in this bull phase. Notwithstanding, as BTC's price goes parabolic, so will $GBTC.

3e/ #BTC has been performing better than $GBTC in the 2021 bull phase by a factor of 1.3x. Assume:

#BTC cycle peak price: $216K-$340K
No. of BTC held by $GBTC: 647,856
No. of $GBTC issued: 692,370,100

$GBTC's peak price:
$202-$318 (Unadjusted)
~$150-$240 (Adjusted)

Conclusion:
1. $GBTC will trade at a discount during the #BTC bull phase unless it is converted into a ETF, but this won't happen this year
2. Unlike 2017, $GBTC has performed worse than #BTC in 2021 as reflected by its persistent -ve premium
3. $GBTC's peak price: $150-$240