The Bitcoin Investment Trust is an open-ended grantor trust based in the U.S., sponsored by Grayscale Investments. Trading under the ticker GBTC, it is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. According to its prospectus, the Trust's objective is for the NAV per share to track bitcoin's market price…

However, as the chart below shows, while NAV is not far off the price of Bitcoin (multiply the Trust's NAV by 10), the actual traded price of the trust has exploded… to a premium of over 100% in recent days – a record…

GBTC now has a market cap of almost $ 750 million and offers (for those who can find a borrow) perhaps the greatest bitcoin arbitrage of all time with GBTC trading at a stunning $ 2000 premium to the underlying Bitcoin it is supposed to track…

 

As Chris at Capital Exploits previously noted, in any other market on this planet, were we to have an asset priced at one level in one place and an entirely different price some other place, the price discrepancy wouldn’t last very long.

Traders would buy the asset where it is cheaper while simultaneously selling the asset where it is more expensive and pocketing the difference. Something also known as an arbitrage.

 

Arbitrage opportunities exist in public markets all the time but the discrepancies are typically extremely small and even more so with higher liquidity. It’s also pretty rare for them to last for any real length of time. Years ago I worked with traders whose sole focus was on arbitrage trading but today algorithmic trading trading has almost eliminated these opportunities and jobs.

 

Bitcoin’s market cap is now over $ 37 billion so it can no longer be considered “illiquid”.

We herefore humbly ask any of the Joe Sixpacks out there who’ve invested in this Bitcoin Trust to provide me a borrow as shorting it is not currently available.

Take another look at the above chart and tell me you, too, wouldn’t want to arbitrage this anomaly?


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