BIT holders are sitting on a once in a lifetime opportunity.
Current GBTC ask: $41/sh (equivalent to $410/BTC)
Current BTC price: $238
In late 2013, Greyscale Investments, a wholly-owned subsidiary of Barry Silbert’s SecondMarket, launched an investment fund called the Bitcoin Investment Trust (BIT).
The trust was designed to act like an open-ended mutual fund, buying and holding Bitcoin’s on behalf of its investors, which they would be se to redeem after holding their shares for a year (due to a lock-up).
Unfortunately for those holders, a few negative things occurred. First, due to their lock-up, the ones that got in early were unable to sell into the late 2013 price spike, and the overall trend for Bitcoin prices has been downwards ever since, meaning that everyone who purchased since that spike is deep in the red at this point.
Next, when the lock-up period had been reached, shareholders who wanted to exit learned of another “snafu”, namely that the SEC prohibited Grayscale from redeeming BIT shares.
Grayscale came to the rescue and found an exit for their shareholders, in the form of a ruling by the SEC that allows shareholders of private investment funds to sell those shares to the public after holding for a year. Grayscale hurriedly filled out applications with the SEC, and the Bitcoin Investment Trust (OTCBB: GBTC) was born, beating the much-awaited Winklevoss Bitcoin Trust (expected symbol: COIN) to the punch to become the first publicly traded Bitcoin asset. Qualifying BIT holders can turn in their privately held shares and receive publicly trading shares of GBTC in exchange.
And this is where their once in a lifetime opportunity lies. Due to many reasons (mostly uneducated purchasers, in my opinion) GBTC shared trade at a huge premium to the value of the assets that they contain.
Specifically, each GBTC share contains 1/10th of a Bitcoin, and nothing else. That tenth of a Bitcoin can be purchased anywhere else for $23.80, except when it’s wrapped up inside a share of GBTC, it’s worth (currently) around $41.00. Why there are buyers willing to purchase $23.80 worth of assets for $41 is beyond me, but they do exist, and thee seem to be hundreds to thousands of them.
And this is where GBTC holders have a free lunch being offered to them.
Let’s say you own 100 shares of BIT. You’re very hopeful for Bitcoin’s future, so you always want to maintain a long position of at least 10 BTC’s. Right now, you can convert your 100 BIT shares into 100 shares of GBTC, and sell those resulting shares for $4100.
“That’s great” you say, “but there goes by 10 BTC long exposure”.
Not to worry! You can purchase 10 BTC through an exchange for just about $2400. Meaning you can continue to maintain your 10 BTC position and have $1700 to do with what you wish (increase your position, diversify into other investments, buy a computer, anything).
Aside from wash sale rules, there’s no logical reason why BIT holders shouldn’t be trampling over one another to get to the door before it closes. None at all.
And these guys have been burned. Some got in early enough that their investments are still profitable, but most (profitable investors included) have been forced to sit on their hands as Bitcoin went from over $1,000 to its present $240. And once the lockup on their shares expired, they learned that they still couldn’t sell. In short, they’ve been battered quite a bit, and have finally been rewarded. It won’t last long, though. Someone will take advantage of the opportunity, and then others will, whereby the process will repeat until the GBTC premium had disappeared.
So, BIT holders….
On your mark…
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