GBTC could cause major problems by being unclear on what it plans to do with the Bitcoin forks. There is only one answer, HOLD all coins in the trust. Or at least, that is my opinion.
NOTES: Despite being somewhat unclear on other forks, there was a press release from Greyscale that discussed Bitcoin Cash distributions. See: Nov. 3rd’s Bitcoin Investment Trust Provides Update on Bitcoin Cash Distribution and Remittance of Cash Proceeds (a follow up to Oct 25th’s Bitcoin Investment Trust Announces Record Date for Distribution of Bitcoin Cash and Remittance of Cash Proceeds). The latest press release confirms they are selling the Bitcoin Cash and distributing it holders of the trust. The implication seems to be that whoever holds shares of the trust on November 6, 2017 (the “record date”) at market close will be privy to the Cash (a little odd since the block snapshot date was in August; but reasonable as it rewards people for being in the trust when the Cash was liquidated). This is not the worst case, but while this is an acceptable method for Bitcoin Cash… it is still not what I would consider the best method moving forward. I get that there could be problems with holding coins created from forks in terms of legal issues (on the regulator side). However, I think this is the sort of thing the trust and regulators need to work out (as it will be an ongoing issue with crypto and its derivatives). If Segwit2x somehow becomes the dominate Bitcoin, the problems with recycling the above method are beyond obvious. These things aren’t easy to see coming, its important that the trust is out in front of potential issues in the future. Likely Cash and Gold won’t end up being a big deal, but Segwit2x is a different beast. With all that said, and all I’ll say below, its worth noting that even if the trust liquidates every fork, there are plenty of reasons to buy GBTC (and to be fair considerations for why to buy BTC itself instead).
With those notes covered, let me return to the original article and further explain my position (which is, to be clear, based on opinion and is not to be mistaken for professional advice or investing advice):
I’m not sure Greyscale (the entity that operates the GBTC Bitcoin investment trust), its shareholders, or many others get the gravity of the situation.
If the Bitcoin we all know and love now is not the Bitcoin that stays around, it will essentially invalidate the trust (which at the moment officially holds only the current Bitcoin).
The only way to avoid this unlikely worst case scenario is to hold Bitcoin Cash, Bitcoin Gold, Bitcoin Segwit2x, and any Bitcoin spin-off created from here forward (the trust logically should own all these in equal part to the Bitcoin they held at each fork… meaning they should be holding a ton of Bitcoin Cash, Bitcoin Gold, and soon Bitcoin Segwit2x in theory).
Further, not only does that strategy prevent a worst case, holding those coins could add great value to the trust as well. This is especially true if one of the forks ends up being a major player or even ends up being the dominate Bitcoin over time.
Meanwhile, selling off the tokens created by the forks and distributing the funds to holders of the trust at the time is nice and fine for whoever held the trust at the time, but adds no value to the trust long term.
I can’t speak for everyone, but I assume many aren’t buying GBTC at a premium because they want money today, they are buying the trust for long term value.
Meanwhile, not distributing or holding the funds (the worst move of all) would show that the trust was an absurd alternative to bitcoin.
The bottom line is something must be done with the forks, and since doing nothing isn’t an option, the only three real choices then are:
- Hold all coins from the fork in the trust.
- Sell the coins and distribute the profits to whoever held the trust at the time.
- Do a mix of those things.
Of those choices, the first is the best move, and the second is rather toxic, and the third is reasonable.
Selling the coins rewards those who were around at the fork. That is justified that they should be rewarded, but that is a one time thing. The only people it really helps are those who were in at a given fork and who have since sold.
Meanwhile, holding the newly created coins in the trust benefits anyone still in the trust and anyone who enters the trust moving forward, as increases the value of the trust. As a bonus, it also helps justify the current premium that the market has created.
Meanwhile, not handling this situation correctly could hurt the market price of GBTC, thus leaving a bad taste in the publics mouth.
GBTC is the face of Bitcoin on the stock market. It really does matter what GBTC does with the forks. The Segwit2x fork is estimated to occur Nov. 16th. Not having a definitive plan at this point (after the Bitcoin Cash and Gold forks have passed) is distressing. How can one properly value the trust if one doesn’t know how Segwit2x will be treated?
I’ve heard the plan to sell Bitcoin Cash (and this would imply the same would be done for Bitcoin Gold and Bitcoin Segwit2x). This is, in my opinion as I have made clear, a mistake.
On our page “should I buy GBTC” my biggest word of caution isn’t the premium, it is the uncertainty over the forks. Greyscale can’t control the premium, but they can sure control how they manage the forks. Honestly, the reputation of Greyscale and Bitcoin are both riding on this.
If they can’t decide, then they should at least ping their shareholders and ask them. Consensus would I assume result in only one answer. That is: HODL (maybe with some amount of distributions from the forks).
NOTE: Despite all the unknowns, GBTC is a solid bet (although my main crypto funds are in actual crypto, I’m always personally watching it for good buying opportunities despite all the unknowns). At the end of the day, GBTC is essentially the only way to get exposure to Bitcoin on the stock market at the moment. And for that reason, it has value and there is a reason to be bullish. That said, how the handle the forks matter greatly. As always though, do your own research and make your own investing choices!
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