GBTC’s Premium is Substantial; But This Is Not New News

Over the summer Andrew Left reminded the market that GBTC’s premium was substantial and everyone panicked and sold. Let us not repeat that event.

Let’s clearly and calmly look at the facts and react, but not overreact.

  • Fact: Bitcoin is trading at about $10k.
  • Fact: Greyscale’s GBTC (Bitcoin Trust) is trading like Bitcoin is priced at $16k.
  • That discrepancy of the price of a share of the trust to its NAV (Net Asset Value) can be referred to as a “premium.”
  • In this sense, GBTC currently has a high premium.

NOTE: In the image above is from Greyscale’s official website, very roughly, it would be Bitcoin at $9k and GBTC at $13k (the market is moving quickly).

The above would lead most to conclude that GBTC is overbought to a substantial degree.

However, luckily for everyone, if you are bullish on crypto, that price tag could become justified in a rather short period of time.

Even luckier for current holders of GBTC, the Bitcoin market can be irrational and there is perhaps still room to go up.

The problem is, every good scenario above is based on stretching of logic and a good deal of luck.

I am sure everyone who saw their Friend’s and Family’s Bitcoin profits has downloaded Coinbase or been eyeing GBTC at this point.

Yes, indeed, there is a ton of money to be gained in cryptocurrency over the long term, people aren’t wrong to be eyeing it. Instead, they are arguably smart to get in on this wave (as it very likely is only up from here, with some big scary bumps in the road in between).

However, while new users might be right to be bullish, new users may not realize that GBTC trades at a premium noted above. What that means in laymen’s terms is that you are paying the equivalent of like $16,000 per Bitcoin right now when you buy GBTC (where BTC is at $10k for 1 Bitcoin and GBTC is nearly $1,600 for a share which is a little under 1/10th Bitcoin AKA “about $16,000 a Bitcoin”).

That means, while I get the logic of putting Bitcoin in your 401k (nice move), the reality is you could buy over 3 actual Bitcoins for the price of 2 Bitcoins worth of GBTC… and that is a little gnarly (you could almost cash out your 401k, pay the 40% fee, and buy Bitcoin and be better off; not really, but almost).

Yes, what I’m saying is that people are paying $16,000 for a Bitcoin (when you consider GBTC’s holdings and fees) that is held in a trust and which can’t be traded 24/7 like Bitcoin.

Further, although Greyscale who runs GBTC has been responsible about claiming forks and then paying out the funds from the sale (on-paper they are moving forward with this). GBTC also won’t net you forked coins that you can hold (so you won’t get your equal parts Bitcoin Gold, or Cash, or whatever; you’ll just get a payout after fees from Greyscale selling it for you).

Thus, for those who think $10k Bitcoins are expensive, they should consider how much more expensive $16k indirect Bitcoins from GBTC are.

The problem isn’t the value, the problem is Andrew Left 2.0 goin on MSNBC and being like “Bitcoin is up so SQ, AMD, NVIDA, and GBTC should all crash now; be afriad.”

The thing is, this is all really frustrating as this just happened like 3 months ago with GBTC (and yesterday with SQ, AMD, and NVIDA actually).

Late in the summer BTC was $5k and GBTC was $1,100 (or so) and the some news went around (specifically Andrew Left, who shorts markets, went on the major news circuit and told everyone the sky was falling), and the result was everyone panicked and sold off a valuable asset.

People should arguably not be paying $1,600 a share right now for GBTC, clearly that is a little nuts (although you can justify anything based on future value), but more so people shouldn’t start panicking like they did last time.

Let GBTC consolidate at $1,600. Set some stops. Try not to run around selling in a panic.

Essentially there is no way this ends well unless BTC quickly breaks $10k and charges up toward $15k. The problem is, that will probably just trigger another GBTC run. Ugh!

That is awesome for the nimble, but its going to sting some new buyers.

Not just that, but it also hurts GBTC in general.

When GBTC goes into bear market territory it stops reacting to BTC, and it really diminishes the usefulness of GBTC as anything but a place to place bets on random waves of Bitcoin adoption (where you are betting people haven’t read our articles on GBTC and jumped into the stock without realizing any of this backstory).

Clearly a new wave of people are getting into Bitcoin, clearly no one bothered to tell them about the history of GBTC. This is frustrating. Let’s pray BTC runs up and GBTC can stave off a sell off (and consolidates rather than runs up with Bitcoin). That is essentially the only way everyone gets out of this with their shirts. Not much good can come from this rather unreasonable premium at the moment.

Remember though, if you are thinking of selling, you can probably get away with holding at any price so far long term and be alright. The only people who lost last time were those who sold (as GBTC’s high of $1,100 was nothing compared to $1,600).

BOTTOMLINE: GBTC is a great choice for a stock pick at almost price (because Bitcoin is very likely to do very well in the future)… but if the premium gets out of hand its bad news for everyone. The more rational the market can be, the more useful GBTC will be as a tool for tracking the price of Bitcoin. Don’t expect GBTC to trade at NAV, but there is only so many multiples of 100 that it can sustain here (at least historically this has been the case).

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...

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