If you are long the Bitcoin Investment Trust (like I am), you no doubt are aware of the 20 percent drop in value on Friday. The drop was precipitated by comments by commentator Andrew Left (who announced he is shorting GBTC). Left is beating the drum on an issue that most people are already aware of, that GBTC trades at a big premium to its underlying asset - Bitcoin. In the same market that places a value of more than $15 billion on a stock like Snapchat (SNAP), which has no earnings and no intrinsic value based on on traditional measures, some simply can't accept the notion that GBTC can logically trade at such a premium.
There is a very simple explanation, and solid logic to why there is no reason to be worried about the GBTC premium. The way that I look at this is that GBTC represents the 'secondary market' and buying Bitcoin directly on an exchange is tantamount to buying the IPO. We readily accept every day that a stock can be offered at a given IPO price and on the first trade double or even triple (If you are not a stock trader, another way to look at this is the difference between wholesale and retail pricing).
The second major reason is very simple. The convenience of buying through the stock exchange, and being able to do so within a retirement account, creates a substantially higher demand for GBTC than for Bitcoin as a direct purchase.
Lastly, if you are someone that believes that Bitcoin is headed to $100,000 or even $1,000,000 or more, you frankly don't care if you are paying double the price today. I know this might sound crazy, but I have had so many conversations with people that would rather buy online through their brokerage account than to deal with any of the exchanges. Many don't trust the exchanges (thank you MT Gox), and others are simply unwilling to deal with loading an app on their phone, or the technology curve of buying through Coinbase or any of the others. This is the reason that a cryptocurrency will rise in price when buying it becomes easier (e.g. Litecoin being added to Coinbase). I continue to buy Ripple XRP through Gatehub, but it is not an easy platform for newbies to use or trade on. This is why XRP will jump substantially in value once it inevitably ends up on Coinbase itself.
I think it is only logical to expect the divergence between the spot Bitcoin price and the implied price in GBTC to narrow over time. This will happen when investors have a wider variety of Bitcoin funds to choose from. The biggest mistake any investor can make right now, in my opinion, is not owning a piece of the Bitcoin pie (even if you pay double to get a slice). Of course, the lowest cost way to get in is to set up an account with one of the exchanges. If you do so, I personally recommend Coinbase, and this link you will get you $10 of bonus Bitcoin when make a $100 purchase.
In my view, shorting the Bitcoin trust at this time is about as smart as standing in front of a freight train.
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