GBTC Hits All Time Highs; What Can This Tell Us?

GBTC (the Bitcoin Investment Trust) hit $3,350 today. That is the equivalent to about $34k per Bitcoin. This tells us demand for Bitcoin is strong.

Well not just strong. Rather, demand for Bitcoin is far stronger than you would assume if you just looked at the exchanges where seasoned crypto traders roam.

On the exchanges I can buy or sell Bitcoin for about $18.75k at the moment (give or take depending on the exchange). That works out to about $1.87k per 1/10th Bitcoin (AKA per 0.1 BTC). Meanwhile, if I want to buy into the the trust, I’m paying $3.45k for stock that represents a little under 1/10th Bitcoin.

That premium (that extra amount paid) might seem absurd at first glance, but after watching GBTC grow from $300 to $3,350, I have come to ignore the NAV (Native Asset Value; what BTC is worth on the exchange in this case) and premium (the amount GBTC trades for relative to its NAV) and focus on what GBTC represents.

What GBTC represents is the current demand of Bitcoin (and crypto in general) in a more accessible market with a more limited range of choices.

GBTC shows us, if you read the data the way I do, that average investors are more bullish on Bitcoin and crypto then the crypto community itself!

In the futures market we might see contracts for $20k Bitcoin that settle early next year. On the exchanges we may think $18.75k is the current fair market price. But to the average investor not in the crypto space, but with a 401k or IRA, these prices are dirt cheap.

To them, if we listen only to the sentiment of the GBTC market, the future price of Bitcoin is $35k. The GBTC investor after-all is willing to buy GBTC now with the hopes of that not only actualizing… but exceeding $35k.

Further, the GBTC investor seems to have little concern for daily price fluctuations. Today Bitcoin went down, but GBTC went up. That bullish future project that GBTC represents was not held back by the bidding wars on the exchanges. It ignored it and remained bullish.

I scoffed at the premium a bit along with Andrew Left in late August. I even sold my GBTC and bought more actual Bitcoin at one point due to an analysis of GBTC vs. BTC. However, over time I have learned to eat my words, not scoff, and regret my overly analytical decision. The correct price for GBTC isn’t its NAV, it is what people are willing to pay for easy access to Bitcoin (where they don’t have to learn about Coinbase or crypto wallets).

GBTC doesn’t represent Bitcoin’s trust being overbought as much as it represents the peoples’ Bitcoin futures (plus a little premium for ease of use). I.e. part of the premium should be seen as a rational fee for not having to muck with the crypto space, and the other part should be seen as “a sentiment of the future value of Bitcoin of the average investor.”

We can say “but the average investor doesn’t understand what they are buying”… and be smug. But this smugness is the same as the smug banker who says Bitcoin is a ponzi bubble. It is foolish to be that smug if you have any interest in crypto at all.

Instead of being smug, we might want to think in a more respectful way. That, “the average investor knows what they are buying (essentially). That is, Bitcoin. And they think it has potential to go beyond $35k.” They think, “if this is the price, then it is a fine price.”

In investing you can be conservative, but you shouldn’t fight the sentiment of the market (especially not if your being cynical; if you are, then you are trading emotionally essentially).

If the people think Bitcoin is worth $35k, if they won’t panic sell if it goes down (so far they seem to bid the price up when Bitcoin dips on a good day) then it tells the exchange-based investor… BUY Bitcoin under $20k, because it won’t remain at that price point for long.

Am I saying “buy GBTC?” No. Am I saying “buy Bitcion?” Well I mean, if you aren’t thinking about it, its unclear to me why you are reading about GBTC on a cryptocurrency site. Still, I’m not telling you how to invest (standard disclaimer to not take this as investing advice). I am just suggesting one way to read the data. That is, if we see GBTC as a barmotoer of the sentiment of the newly inititated, we can see that there is some epic times ahead.

If we want to know the future price of Bitcoin, we should perhaps not ask Jamie Dimon, Roger Ver, the futures market, or Jane-the-Bitcoin Whale… but should instead look to what the average investor is spending on it today. They are already well ahead of us. Last time they traded BTC for $10k it was $5k. And honestly, we can see which market had the future price of Bitcoin right… [Macafee aside] it was GBTC investors buying it with their 401ks, not the smarty pants BTC investors on the exchanges, not the Wall Street analysts, and not the banks.

In other words, if you are bullish on Bitcoin and are curious to what the future price could be, you may want to look to GBTC and not to the exchanges or futures market. Meanwhile, if you think its all a bubble about to pop, then the you may want to read this data differently (that is, you would see it as us being at a similar point we were in late august right before a major corrections). Still, correction is just another word for Bitcoin going on sale, so if you are bullish, keep that in mind too.

UPDATE: One thing I didn’t stress enough here, but should have in retrospect, is that the average Bitcoin investor on the stock market (especially the new one) hasn’t necessarily learned the lesson of “holding through corrections.” In crypto we see wild price fluctuations, that includes corrections of more than 50%. Unfortunately for GBTC holders, a big correction in crypto happened and it was magnified in the GBTC market given its premium. I still read the bull-run that predicated that the same way, that is that we should see this is a positive gauge of increasing demand. However, with that bull-run toward easy money came with some weak knees and weak hands (new investors who were eager to cut their losses or lock in profits when things started looking gloomy). It seems many were not prepared to hold GBTC through the storm (not that Bitcoin holder held up that much better). Those who did hold are very likely to be rewarded down the road. Those who sold low are very likely to learn the value of holding if they don’t find a good re-entry point. When Bitcoin corrects 50%, it is the time to buy and hold, not to sell. That has historically been the case in every point in time so far. It may all end tomorrow, but if it doesn’t, “buy and hold” is the only strategy that works unless you are a nimble day trading market pro. See my thoughts on what to do with GBTC if you already through some of the correction.