All of a sudden, everybody loves Bitcoin.
The King of Cryptocurrencies just traded at a new all-time high near $20,000 per coin. And, as happens when assets are in rally-mode, everybody wants a piece of it.
Of course, most folks weren’t all that interested in owning Bitcoin when it was floundering around $10,000 per coin a few months ago. But today, with Bitcoin trading nearly 100% higher, just about everybody is bullish.
The most recent surge of optimism came on Monday when the Guggenheim Strategic Opportunities Fund announced it would invest up to 10% of its fund in the Grayscale Bitcoin Trust (GBTC).
GBTC is essentially an exchange-traded fund (ETF) that tracks the price action of Bitcoin. It’s the easiest way for most folks to gain exposure to Bitcoin. Rather than opening up a digital wallet, and dealing with whatever complications that entails, traders can buy shares of GBTC directly in their brokerage accounts.
Guggenheim’s announcement put a lot of attention on GBTC. And, folks rushed in to buy the stock.
But that’s a crazy thing to do right now…
GBTC closed on Monday at $23.19 per share. The net asset value of the Bitcoin it owns, though, is worth only $18.16 per share.
In other words, investors are paying a 28% premium to buy GBTC versus buying Bitcoin itself. That’s nuts!
That’s like paying $1.28 to buy a $1 bill. No rational person does that.
Of course, GBTC has ALWAYS traded at a premium to its net asset value. It’s an easier way to buy and sell Bitcoin. So, until the cryptocurrency market becomes more liquid, GBTC is going to trade at a premium to its net asset value.
Historically, though, that premium is usually around 10%-12%. The current 28% premium is excessive.
And, when we’ve seen this situation before – like in June 2019, December 2017, and in February of this year – it signaled the price of Bitcoin was nearing at least a short-term top.
No matter how bullish you might be on Bitcoin, it doesn’t make much sense to pay a 28% premium to own it by buying GBTC at the current level.
Best regards and good trading,
Editor, Market Minute