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The article gives a good overview but is a bit on a sensationalist side with the presentation. The way I understand the situation (and I am not a expert, would
by ptero 4y ago
The article gives a good overview but is a bit on a sensationalist side with the presentation. The way I understand the situation (and I am not a expert, would love to be corrected):
1. GBTC was set up to allow people, who did not want to set up a cold storage, exchange or similar crypto mechanisms to buy a BTC proxy by buying shares of GBTC, which would buy the corresponding amount of Bitcoin. It was convenient, other options were difficult, crypto was hot, so GBTC traded, on a secondary market, with a premium to the underlying BTC it held. It also charged noticeable fees (which also allowed the company to operate without FTX style financing).
2. Where there is a price mismatch, there is arbitration. Sophisticated teams did leveraged arbitration on BTC vs GBTC and got a lot of money out of thin air. But all schemas like this work until they do not. At some point, GBTC premium on the secondary market turned into discount and people doing arbitration lost lots of money. I cannot shed too many tears for them: investment is risky and those were very sophisticated investors who had to know that arbitrage sometimes flips. Win some, lose some.
3. All that does not mean that people who invested in GBTC (bought shares through their traditional brokerages) got swindled, FTX style. GBTC still trades on secondary market. Any broker would be happy to let you buy or sell it. Like any closed-end mutual fund, its price may be higher or lower than underlying, which adds a little extra volatility (but nothing compared to the volatility of the underlying Bitcoin). But folks who decided they do not want GBTC can sell anytime and get dollars back.
4. It is useful to keep timeline in mind. If there is any whiff of the exchange or trader insolvency, people will pull the money in the matter of days; more likely hours and minutes. GBTC went from premium to discount about 1.5 years ago. If I wanted BTC today I would not buy GBTC; it is, says me, not the best option. However, I do not think it is going to collapse due to a fraudulent activity or creative financing. My 2c.
- thaumasiotes 4y ago> GBTC went from premium to discount about 1.5 years ago. If I wanted BTC today I would not buy GBTC; it is, says me, not the best option. The discount doesn't matter so much to that. If the discount rate stays constant, then GBTC is an equally good investment as any other exposure to bitcoin - when BTC rises 50%, GBTC will also rise 50%.
- dragontamer 4y ago> If the discount rate stays constant However, the discount rate is not constant. It was a premium a year ago (+10% ish), and now it is a discount (-50%). GBTC goes up and down based off of rumors of Gemini bankruptcy. Genesis will skyrocket if the bankruptcy rumors turn out false. Otherwise, GBTC may further collapse.
- vgatherps 4y agoIf it can flip, it’s not really an arbitrage, but a bet that you’ll be able to exit the trade before it does flip or borrow costs kill you.
- vba616 4y agoIf it's a permanent profit source, then it can't be an arbitrage either, can it? If two things are theoretically supposed to be the same, and they never converge, then the claim that they are the same seems dubious.
- freeone3000 4y agoThey're not the same. GBTC traded at a premium because custodianship of bitcoin is a service which could provide value. Currently the consensus view is that this value is negative -- maybe people don't trust GBTC in particular, maybe people don't want to trade a BTC derivative on regulated markets, maybe custodianship isn't worth as much as they're charging after all. But it's not exactly the same product, the same as a cash settled silver futures contract and holding silver in your basement are not the same product.
- vba616 4y agoIt's obvious it's not exactly the same product. The definition of arbitrage is what's not mutually understood. Like the "is Pluto a planet" argument. Say that your position is that only arbitraging between GBTC and GBTC on different exchanges is really arbitrage. Well, what if that doesn't converge? There has to be a difference in the first place, and some uncertainty. So if "exactly the same product" doesn't converge, then you can say that it isn't exactly the same after all. Which means that the definition of "same", however you choose, must be a bit arbitrary. Definitions are arbitrary, but I think there are objectively bad definitions, which are so flexible that they can include or exclude everything or that definitely do include or exclude everything.
- vgatherps 4y ago
- csomar 4y ago> Sophisticated teams did leveraged arbitration on BTC vs GBTC and got a lot of money out of thin air. But all schemas like this work until they do not. At some point, GBTC premium on the secondary market turned into discount and people doing arbitration lost lots of money. This part doesn't make sense and makes me think the article is just random blurb. If you shorted GBTC and bought BTC during the premium and held until this point: You'll be profitable to your neck. Actually, you'll drown in profit. Not only you collected the premium but also now you get to collect the discount. Of course, someone might have mismanaged the trade. That's trading: It's not about "predicting" the outcome, it's more about managing the money flow. But the trade was profitable. It still is. The arbitrage is there if you are patient.