Bitcoin ETF (GBTC): Is 17% premium irrelevant?

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Samosa22
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Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Samosa22 »

I have been thinking about purchasing Grayscale Bitcoin Trust (GBTC) in Roth account but so far haven't bought a share primarily because GBTC comes with a 2% annual fee and 17% premium. But then I read a comment from matt1882 in another BH thread floating the idea that 17% premium actually doesn't matter. Here is that comment;
matt1882 wrote: Fri Jan 01, 2021 7:24 pm Consider the following scenario, which assumes that the premium remains consistent:

NAV is $100 per share, so market price is $117 per share (17% premium).

I buy 1 share at $117.

Bitcoin increases by 50%. So NAV is now $150 per share, and market price is now $175.50 (17% premium)

I now sell my share at $175.50 (which I had bought at $117), making a 50% profit, which exactly tracks the percentage by which bitcoin has
appreciated.

In this scenario, the premium is neutral: the 17% extra I paid on the front end is compensated for on the back end.

What am I missing? (All of this ignores the 2% management fee, which is a different question.)
I haven't seen many responses to this comment, so decided to create a new thread in the hopes to get feedback on this assumption. Is it reasonable to assume that the premium is irrelevant as long as the percentage of premium remains constant?
Diversification is protection against ignorance - WB.
dru808
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by dru808 »

Irrelevant, whose to say you won’t sell at a 50% premium? It’s gone up to 100%. If it triples and you sell at zero premium what will the 17% matter?

This is assuming you don’t want to set up a crypto account and have to keep it part of your taxable portfolio.

Ira is where I recommend gbtc.
Last edited by dru808 on Sun Jan 03, 2021 4:11 pm, edited 2 times in total.
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Makefile
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Makefile »

Samosa22 wrote: Sun Jan 03, 2021 4:00 pm I haven't seen many responses to this comment, so decided to create a new thread in the hopes to get feedback on this assumption. Is it reasonable to assume that the premium is irrelevant as long as the percentage of premium remains constant?
I don't think it's safe to assume the premium remains constant. Obviously none of the normal rules apply with "crypto," but I thought about closed end funds where there is also a discount/premium. Picking one off the Nuveen home page, JTD - Nuveen Tax-Advantaged Dividend Growth Fund, it sold at a 4.93% premium at inception in June 2007. It now sells at a 13% discount.
langlands
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by langlands »

As I posted in the other thread, yes the 17% premium does not matter assuming it stays constant. matt1882 however made the erroneous claim that the premium would actually be a benefit for the investor, which of course isn't true. GBTC is basically a bet on both bitcoin and the "premium" with a 2% annual fee drag. If the premium doesn't move, you get bitcoin with a 2% per year drag. Incidentally, I think the premium is at a pretty good (cheap) level historically speaking.
Last edited by langlands on Sun Jan 03, 2021 5:34 pm, edited 1 time in total.
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ccf
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by ccf »

Here is a chart of the GBTC premium over time:

https://ycharts.com/companies/GBTC/disc ... ium_to_nav

Image
Squidwardnakamoto
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Squidwardnakamoto »

Hey guys. The concern is that a BTC ETF will be authorized by the SEC, which will allow investors (primarily retirement fund investors for whom buying BTC directly is very difficult) to invest in a fund that tracks BTC’s price without any premium. If/when that occurs, the GBTC premium will likely fall to 0 — or perhaps trade at a slight discount to the price of BTC, given the 2% fee.

But until that happens, expect GBTC to trade at a premium given the lack of better alternatives.
Last edited by Squidwardnakamoto on Sun Jan 03, 2021 5:35 pm, edited 1 time in total.
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Samosa22
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Samosa22 »

langlands wrote: Sun Jan 03, 2021 5:30 pm As I posted in the other thread, yes the 17% premium does not matter assuming it stays constant. matt1882 however made the erroneous claim that the premium would actually be a benefit for the investor, which of course isn't true. GBTC is basically a bet on both bitcoin and the "premium" with a 2% annual fee drag. If the premium doesn't move, you get bitcoin with a 2% per year drag. Incidentally, I think the premium is at a pretty good (cheap) level historically speaking.
Thanks. Let's say an investor buys GBTC at 20% premium. Later, bitcoin price rises by 50%. GBTC is also selling at 40% premium (instead of 20%). If the investor sells their GBTC at that point, does this mean their total return on principal would be 70% (50% appreciation of the underlying asset and 20% increase in premium) minus 2% fee?
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Samosa22
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Samosa22 »

ccf wrote: Sun Jan 03, 2021 5:32 pm Here is a chart of the GBTC premium over time:

https://ycharts.com/companies/GBTC/disc ... ium_to_nav

Image
If I have read the chart correctly, looks like GBTC has always traded at a premium so far irrespective of the BTC price.
Diversification is protection against ignorance - WB.
langlands
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by langlands »

Samosa22 wrote: Sun Jan 03, 2021 5:49 pm
langlands wrote: Sun Jan 03, 2021 5:30 pm As I posted in the other thread, yes the 17% premium does not matter assuming it stays constant. matt1882 however made the erroneous claim that the premium would actually be a benefit for the investor, which of course isn't true. GBTC is basically a bet on both bitcoin and the "premium" with a 2% annual fee drag. If the premium doesn't move, you get bitcoin with a 2% per year drag. Incidentally, I think the premium is at a pretty good (cheap) level historically speaking.
Thanks. Let's say an investor buys GBTC at 20% premium. Later, bitcoin price rises by 50%. GBTC is also selling at 40% premium (instead of 20%). If the investor sells their GBTC at that point, does this mean their total return on principal would be 70% (50% appreciation of the underlying asset and 20% increase in premium) minus 2% fee?
Pretty close, but not exactly because of arithmetical issues. I hope the following logic is clear, not exactly sure how to say it:

Since GBTC is at 20% premium, you are buying at 1.2. After one year, bitcoin has risen 50% and the premium is 40%. So GBTC is selling at 1.5*1.4. So your total return is 1.5*1.4/1.2 = 1.75, i.e. it's 75%. After subtracting the 2% fee, you have 73%. Since you bought in Roth IRA (right?), no taxes and that's the final gain.
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Samosa22
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Samosa22 »

langlands wrote: Sun Jan 03, 2021 5:55 pm
Samosa22 wrote: Sun Jan 03, 2021 5:49 pm
langlands wrote: Sun Jan 03, 2021 5:30 pm As I posted in the other thread, yes the 17% premium does not matter assuming it stays constant. matt1882 however made the erroneous claim that the premium would actually be a benefit for the investor, which of course isn't true. GBTC is basically a bet on both bitcoin and the "premium" with a 2% annual fee drag. If the premium doesn't move, you get bitcoin with a 2% per year drag. Incidentally, I think the premium is at a pretty good (cheap) level historically speaking.
Thanks. Let's say an investor buys GBTC at 20% premium. Later, bitcoin price rises by 50%. GBTC is also selling at 40% premium (instead of 20%). If the investor sells their GBTC at that point, does this mean their total return on principal would be 70% (50% appreciation of the underlying asset and 20% increase in premium) minus 2% fee?
Pretty close, but not exactly because of arithmetical issues. I hope the following logic is clear, not exactly sure how to say it:

Since GBTC is at 20% premium, you are buying at 1.2. After one year, bitcoin has risen 50% and the premium is 40%. So GBTC is selling at 1.5*1.4. So your total return is 1.5*1.4/1.2 = 1.75, i.e. it's 75%. After subtracting the 2% fee, you have 73%. Since you bought in Roth IRA (right?), no taxes and that's the final gain.
Thanks for explaining it to me! I would have preferred to buy bitcoin directly on an exchange but I don't have money sitting around, and I am certainly not going to sell my assets in taxable to generate funds. So, I am inclined towards selling some individual stocks in Roth and use proceeds to buy GBTC. I mean at this point GBTC looks less risky than my individual stocks in Roth.
Diversification is protection against ignorance - WB.
Soon2BXProgrammer
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Soon2BXProgrammer »

Samosa22 wrote: Sun Jan 03, 2021 6:04 pm
langlands wrote: Sun Jan 03, 2021 5:55 pm
Samosa22 wrote: Sun Jan 03, 2021 5:49 pm
langlands wrote: Sun Jan 03, 2021 5:30 pm As I posted in the other thread, yes the 17% premium does not matter assuming it stays constant. matt1882 however made the erroneous claim that the premium would actually be a benefit for the investor, which of course isn't true. GBTC is basically a bet on both bitcoin and the "premium" with a 2% annual fee drag. If the premium doesn't move, you get bitcoin with a 2% per year drag. Incidentally, I think the premium is at a pretty good (cheap) level historically speaking.
Thanks. Let's say an investor buys GBTC at 20% premium. Later, bitcoin price rises by 50%. GBTC is also selling at 40% premium (instead of 20%). If the investor sells their GBTC at that point, does this mean their total return on principal would be 70% (50% appreciation of the underlying asset and 20% increase in premium) minus 2% fee?
Pretty close, but not exactly because of arithmetical issues. I hope the following logic is clear, not exactly sure how to say it:

Since GBTC is at 20% premium, you are buying at 1.2. After one year, bitcoin has risen 50% and the premium is 40%. So GBTC is selling at 1.5*1.4. So your total return is 1.5*1.4/1.2 = 1.75, i.e. it's 75%. After subtracting the 2% fee, you have 73%. Since you bought in Roth IRA (right?), no taxes and that's the final gain.
Thanks for explaining it to me! I would have preferred to buy bitcoin directly on an exchange but I don't have money sitting around, and I am certainly not going to sell my assets in taxable to generate funds. So, I am inclined towards selling some individual stocks in Roth and use proceeds to buy GBTC. I mean at this point GBTC looks less risky than my individual stocks in Roth.
The other thing to be aware of GBTC while it looks like an ETF. in some ways it isn't. They decide when they want to create more units, also, currently there is no redemption unit process at all.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by supersecretname »

I've been in GBTC for the better part of a year now.

The premium matters, and you need to understand that it moves up/down also. GBTC is a bit like BTC on steroids. In upswings, the premium will increase and you'll be much better off. In downswings, the premium will drop also, and you'll be much worse off.

It's Sunday night, and I don't think the premium will be at 17% at 9:30 Monday. With that said, low teens and single digits have been good entry points. Recently, it jumped to around 40 when BTC was punching through 20k. That was a good time to take some off the top. The premium then fell to the mid-teens, and was a good entry point.

So yes, the premium matters, and you should be aware of it. Also, if they ever announce a true BTC ETF, the premium could vanish overnight.
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Samosa22
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Samosa22 »

Got in at $35.14. Not sure what the premium was today.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by ohboy! »

Samosa22 wrote: Mon Jan 04, 2021 4:22 pm Got in at $35.14. Not sure what the premium was today.
Premium today is around 15%. That could be wiped out quick if this attempt at a Bitcoin ETF succeeds. BTC up 17% in 7 days so...

What's disappointing is that their Ethereum "trust" is hardly useable to track Ethereum at all.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by dru808 »

Samosa22 wrote: Mon Jan 04, 2021 4:22 pm Got in at $35.14. Not sure what the premium was today.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by langlands »

ohboy! wrote: Mon Jan 04, 2021 4:30 pm
Samosa22 wrote: Mon Jan 04, 2021 4:22 pm Got in at $35.14. Not sure what the premium was today.
Premium today is around 15%. That could be wiped out quick if this attempt at a Bitcoin ETF succeeds. BTC up 17% in 7 days so...

What's disappointing is that their Ethereum "trust" is hardly useable to track Ethereum at all.
Someone in another thread asked about an Ethereum equivalent to GBTC. This piqued my interest and it seems ETHE's premium has fallen to about 27% which is pretty good and similar to GBTC. The premium has historically been in the triple digits, which is pretty outrageous so that as you said the trust was pretty useless as an ethereum tracker.

Anyone thinking of switching out some GBTC for ETHE? Think I'm going to do this tomorrow for some diversification. One downside is that the annual fee is 2.5% to GBTC's 2%. I'm partially also hoping that the premium spikes to some ridiculous level in the future again... :twisted:
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by ohboy! »

langlands wrote: Thu Jan 07, 2021 12:52 am
ohboy! wrote: Mon Jan 04, 2021 4:30 pm
Samosa22 wrote: Mon Jan 04, 2021 4:22 pm Got in at $35.14. Not sure what the premium was today.
Premium today is around 15%. That could be wiped out quick if this attempt at a Bitcoin ETF succeeds. BTC up 17% in 7 days so...

What's disappointing is that their Ethereum "trust" is hardly useable to track Ethereum at all.
Someone in another thread asked about an Ethereum equivalent to GBTC. This piqued my interest and it seems ETHE's premium has fallen to about 27% which is pretty good and similar to GBTC. The premium has historically been in the triple digits, which is pretty outrageous so that as you said the trust was pretty useless as an ethereum tracker.

Anyone thinking of switching out some GBTC for ETHE? Think I'm going to do this tomorrow for some diversification. One downside is that the annual fee is 2.5% to GBTC's 2%. I'm partially also hoping that the premium spikes to some ridiculous level in the future again... :twisted:
27% premium is pretty steep. Could go higher definitely. I guess if playing in tax advantage it makes sense to use these grayscale options. It's really only a few clicks to buy Ethereum through Coinbase (use pro) or Kraken. Or if you want something even more mainstream - Robinhood or Square.

For those of us trying to use Ethereum, the number of transactions and the higher price has made fees pretty absurd over the last week. This is where we do run into some scaling issues. While there are many solutions coming (rollups, staking, layer2) it looks like pain right now for the average user in Defi. For those pushing around tens and hundreds of thousands, or millions, it's not a big deal to pay $30-$50 per transaction.

I was just looking at the order book for stablecoins on one Defi exchange and all of the orders were over $30k for stablecoins because the fees are literally averaging $50 a transaction. What's interesting is this also seems to be pushing the interest rates for providing liquidity higher (higher barrier to entry means less liquidity). Yields for DAI on dYdX are almost 30% right now. The yield farming thing is a bit bananas, and get's way crazier than 30%. It is definitely reminiscent of the IPO craze. I also can't help but think it's a modern day gold rush. The activity in crypto is so much more than just buy, hold, and sell. That's what most people don't understand.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Prahasaurus »

Well, buckle up. I hope all of these new BTC investors realize what they are getting themselves into, because Bitcoin doesn’t just go up. Don’t get me wrong, I’m very bullish BTC long-term. But you need to be ready for daily 30-40% sell offs at times. If you can’t stomach that, stick to VTSAX. Because you will panic and sell, and then miss out on future gains. I saw this vividly in 2017.

As to the coming ETF which should reduce the GBTC premium, I do think it will happen in 2021, but likely later in the year or 2022. But I suppose that is anybody’s guess.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by BruDude »

I bought GBTC about 6 weeks ago at $19.75. Feeling pretty good about that 2% fee and 17% premium now that it’s up 120%. Putting it inside a Roth almost seems like stealing...

The DeFi space has been on an absurd tear the last few weeks. I still think we are only at the beginning and the long term potential of many of these projects is insane.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by supersecretname »

ETHE had a big dump of shares of Monday from investors whose lock up period was shortened due to SEC filing. It tripled the amount of shares available on the market. Time will tell if the premium goes nuts again, but that's what happened on Monday.

https://www.reddit.com/r/ethfinance/com ... od_supply/
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Valuethinker »

Samosa22 wrote: Sun Jan 03, 2021 4:00 pm I have been thinking about purchasing Grayscale Bitcoin Trust (GBTC) in Roth account but so far haven't bought a share primarily because GBTC comes with a 2% annual fee and 17% premium. But then I read a comment from matt1882 in another BH thread floating the idea that 17% premium actually doesn't matter. Here is that comment;
matt1882 wrote: Fri Jan 01, 2021 7:24 pm Consider the following scenario, which assumes that the premium remains consistent:

NAV is $100 per share, so market price is $117 per share (17% premium).

I buy 1 share at $117.

Bitcoin increases by 50%. So NAV is now $150 per share, and market price is now $175.50 (17% premium)

I now sell my share at $175.50 (which I had bought at $117), making a 50% profit, which exactly tracks the percentage by which bitcoin has
appreciated.

In this scenario, the premium is neutral: the 17% extra I paid on the front end is compensated for on the back end.

What am I missing? (All of this ignores the 2% management fee, which is a different question.)
I haven't seen many responses to this comment, so decided to create a new thread in the hopes to get feedback on this assumption. Is it reasonable to assume that the premium is irrelevant as long as the percentage of premium remains constant?
It strikes me that this is a nice measure of market euphoria. This happened in Emerging Markets in the boom years -- all the Closed End Funds went to big premia.

You might model it fading back to 0% over 5 years. Reality is at some point that correction will happen a lot faster than that - and will take it to a substantial discount due to the high Expense Ratio.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by TheTimeLord »

I think the premium becomes relevant when there are more tradable options for Bitcoin. I would expect it to shrink if a couple Bitcoin ETFs come into existence.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by CardinalRule »

TheTimeLord wrote: Thu Jan 07, 2021 8:49 am I think the premium becomes relevant when there are more tradable options for Bitcoin. I would expect it to shrink if a couple Bitcoin ETFs come into existence.
Saw a MarketWatch article recently that suggested a true Bitcoin ETF is unlikely to be approved soon. There would certainly be a lot of interest in such an ETF, whether for speculation or asset allocation.

https://www.marketwatch.com/story/bitco ... 1610746864
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by aristotelian »

Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by supersecretname »

aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
You can buy in a tax-advantaged account.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by aristotelian »

supersecretname wrote: Fri Jan 22, 2021 9:22 am
aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
You can buy in a tax-advantaged account.
I would not pay 17% annually to do so when you can usually realize gains in taxable account for less than that, or realize losses should it go down. There are also crypto IRA's out there. If I am going to take that kind of risk, no way am I giving Grayscale as 17% guaranteed return.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by supersecretname »

aristotelian wrote: Fri Jan 22, 2021 9:31 am
supersecretname wrote: Fri Jan 22, 2021 9:22 am
aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
You can buy in a tax-advantaged account.
I would not pay 17% annually to do so when you can usually realize gains in taxable account for less than that, or realize losses should it go down. There are also crypto IRA's out there. If I am going to take that kind of risk, no way am I giving Grayscale as 17% guaranteed return.
Grayscale doesn't capture the premium to NAV. They sell the shares to others at par, with a 6 month lockup. The premium fluctuates. In good times it's up, bad times it's down. But you are certainly not guaranteed to lose 17%, e.g. you buy + 17% and sell +17%. Yes, it's more risky than just buying BTC directly, but you can't do that easily in IRAs.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by TheTimeLord »

aristotelian wrote: Fri Jan 22, 2021 9:31 am
supersecretname wrote: Fri Jan 22, 2021 9:22 am
aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
You can buy in a tax-advantaged account.
I would not pay 17% annually to do so when you can usually realize gains in taxable account for less than that, or realize losses should it go down. There are also crypto IRA's out there. If I am going to take that kind of risk, no way am I giving Grayscale as 17% guaranteed return.
Premiums are part of things like trusts and ETFs, they are not part of the ER they are the difference in the price and the value of the underlying assets. Occasionally you will see an ETF with a higher NAV than price.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by TheTimeLord »

aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
Easier and more likely more liquid to trade, can consolidate in the same account as other investments, outsources key management and security.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by jrbdmb »

Samosa22 wrote: Sun Jan 03, 2021 6:04 pm Thanks for explaining it to me! I would have preferred to buy bitcoin directly on an exchange but I don't have money sitting around, and I am certainly not going to sell my assets in taxable to generate funds. So, I am inclined towards selling some individual stocks in Roth and use proceeds to buy GBTC. I mean at this point GBTC looks less risky than my individual stocks in Roth.
I'm not sure that I agree with this statement, but I don't have any statistics to back this up (or not). Does anyone have info on the volatility of GBTC or Bitcoin itself compared to the average S&P 500 or NASDAQ stock?
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by asset_chaos »

I thought the authorized participant arbitrage mechanism was supposed to keep the price of an etf close to its nav. As a 17% premium isn't particularly close, it suggests that market makers see this etf as particularly risky. If professionals with deep knowledge of market trading consider this etf extra risky, that seems like a keep away sign for small investors. That's what I see as the relevancy of such a large divergence of price from nav.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by cogito »

Its worth pointing out that all of the increase in interest in the crypto space has brought the Greyscale premiums down towards zero. GBTC and ETHE are both <5%ish now.
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by TheTimeLord »

cogito wrote: Fri Jan 22, 2021 6:13 pm Its worth pointing out that all of the increase in interest in the crypto space has brought the Greyscale premiums down towards zero. GBTC and ETHE are both <5%ish now.
GBTC
Market Price per Share* At close as of 01/22/2021 - $34.45
Bitcoin Holdings per Share** At close as of 01/22/2021 - $29.57
Premium - 16.5% ($34.45/$29.57 = 1.165)

https://grayscale.co/bitcoin-investment ... erformance
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by cogito »

TheTimeLord wrote: Fri Jan 22, 2021 6:55 pm
cogito wrote: Fri Jan 22, 2021 6:13 pm Its worth pointing out that all of the increase in interest in the crypto space has brought the Greyscale premiums down towards zero. GBTC and ETHE are both <5%ish now.
GBTC
Market Price per Share* At close as of 01/22/2021 - $34.45
Bitcoin Holdings per Share** At close as of 01/22/2021 - $29.57
Premium - 16.5% ($34.45/$29.57 = 1.165)

https://grayscale.co/bitcoin-investment ... erformance
Interesting. Turns out I was looking at the premium for share price to NAV, which is what is being used by ycharts here: https://ycharts.com/companies/GBTC/disc ... ium_to_nav

This looks like its close enough to the share price to NAV also found on greyscales site:
https://grayscale.co/gaap-metrics/

So now I'm confused, what is the difference between "Holdings per share", which does show a larger premium, and "NAV per share", which doesn't? How are they even different at all?
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Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by bberris »

Yes the premium is irrelevant. When you are buying the most immaterial of vapor, this virtual currency that can't be used to buy anything. Why would anyone worry about the relative value of a derivative when the primary asset is nothing in particular?
fingoals
Posts: 896
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by fingoals »

I have recently run across two other options for holding selected cryptoassets in IRA (tax-deferred and tax-exempt) as well as brokerage accounts. For the sake of comprehensiveness, I would like to share the following brief information here (see the linked websites for details). Using any of these options is definitely not as streamlined as using GBTC, but it might be beneficial to some people (e.g. due to lower management fees [OBTC], 24/7 trading etc.).

Osprey Bitcoin Trust: https://www.ospreyfunds.io
Management fee: 0.49%
Minimum investment size: $25,000 (accredited investors only; 1 year lock-up period!)
IRA investment method: private placement (at IRA custodians that allow holding private placements)
Non-accredited investors will soon (starting February 16, 2021, it seems) be able to purchase the trust's shares on the OTC market (ticker: OBTC)

iTrustCapital: https://itrustcapital.com
Management fee (called account fee): $29.95 monthly
Crypto trade fee: 1%
Minimum investment size: $2,500
IRA investment method: create new account (traditional, Roth, SEP) and fund it (transfer existing IRA, rollover employer's plan, cash contribution)

Disclaimer: I have no affiliation with companies offering these products and this post does not represent an endorsement or recommendation.
drumboy256
Posts: 53
Joined: Sat Jun 06, 2020 2:21 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by drumboy256 »

Haven't done a metric ton of research, I can safely say skip GBTC and buy Bitcoin directly. Fidelity will NOT honor the paper that you owe that is the Bitcoin in holding that Greyscale buys. So think of basically getting an IOU for something that you can never redeem.

The ONLY thing that will save Crypto (imo) in the next 12-24 months is an Index ETF that actually measures the market cap of Bitcoin and Ethereum sub-sectors. My advice is skip and buy directly from an exchange.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
balofagus
Posts: 31
Joined: Wed Jan 11, 2017 3:52 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by balofagus »

fingoals wrote: Fri Jan 22, 2021 8:20 pm Osprey Bitcoin Trust: https://www.ospreyfunds.io
Management fee: 0.49%
Minimum investment size: $25,000 (accredited investors only; 1 year lock-up period!)
IRA investment method: private placement (at IRA custodians that allow holding private placements)
Non-accredited investors will soon (starting February 16, 2021, it seems) be able to purchase the trust's shares on the OTC market (ticker: OBTC)

iTrustCapital: https://itrustcapital.com
Management fee (called account fee): $29.95 monthly
Crypto trade fee: 1%
Minimum investment size: $2,500
IRA investment method: create new account (traditional, Roth, SEP) and fund it (transfer existing IRA, rollover employer's plan, cash contribution)

Disclaimer: I have no affiliation with companies offering these products and this post does not represent an endorsement or recommendation.
Have you seen Choice by Kingdom Trust
Fortune Seeker
Posts: 135
Joined: Mon Apr 13, 2020 9:52 am
Location: UK

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by Fortune Seeker »

drumboy256 wrote: Fri Jan 22, 2021 8:42 pm Haven't done a metric ton of research, I can safely say skip GBTC and buy Bitcoin directly. Fidelity will NOT honor the paper that you owe that is the Bitcoin in holding that Greyscale buys. So think of basically getting an IOU for something that you can never redeem.

The ONLY thing that will save Crypto (imo) in the next 12-24 months is an Index ETF that actually measures the market cap of Bitcoin and Ethereum sub-sectors. My advice is skip and buy directly from an exchange.
Big selling point of GBTC and other trusts is to have it in tax-advantaged account. You never know what kind of income tax you'll eventually be hit with if cryptocurrency will keep appreciating.
dru808
Posts: 1470
Joined: Sat Oct 15, 2011 2:42 pm
Location: mid pac

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by dru808 »

fingoals wrote: Fri Jan 22, 2021 8:20 pm I have recently run across two other options for holding selected cryptoassets in IRA (tax-deferred and tax-exempt) as well as brokerage accounts. For the sake of comprehensiveness, I would like to share the following brief information here (see the linked websites for details). Using any of these options is definitely not as streamlined as using GBTC, but it might be beneficial to some people (e.g. due to lower management fees [OBTC], 24/7 trading etc.).

Osprey Bitcoin Trust: https://www.ospreyfunds.io
Management fee: 0.49%
Minimum investment size: $25,000 (accredited investors only; 1 year lock-up period!)
IRA investment method: private placement (at IRA custodians that allow holding private placements)
Non-accredited investors will soon (starting February 16, 2021, it seems) be able to purchase the trust's shares on the OTC market (ticker: OBTC)

iTrustCapital: https://itrustcapital.com
Management fee (called account fee): $29.95 monthly
Crypto trade fee: 1%
Minimum investment size: $2,500
IRA investment method: create new account (traditional, Roth, SEP) and fund it (transfer existing IRA, rollover employer's plan, cash contribution)

Disclaimer: I have no affiliation with companies offering these products and this post does not represent an endorsement or recommendation.
Obtc is supposedly coming to market (otc) shortly without the minimum buy in/lockup. I wonder if this will force greyscale to lower their er.

Edit: I should read more closely. You mentioned it above. :sharebeer
Sptm 60 | Vigi 20 | Blv 10 | Btc/Eth 10
drumboy256
Posts: 53
Joined: Sat Jun 06, 2020 2:21 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by drumboy256 »

Fortune Seeker wrote: Sat Jan 23, 2021 3:37 pm
drumboy256 wrote: Fri Jan 22, 2021 8:42 pm Haven't done a metric ton of research, I can safely say skip GBTC and buy Bitcoin directly. Fidelity will NOT honor the paper that you owe that is the Bitcoin in holding that Greyscale buys. So think of basically getting an IOU for something that you can never redeem.

The ONLY thing that will save Crypto (imo) in the next 12-24 months is an Index ETF that actually measures the market cap of Bitcoin and Ethereum sub-sectors. My advice is skip and buy directly from an exchange.
Big selling point of GBTC and other trusts is to have it in tax-advantaged account. You never know what kind of income tax you'll eventually be hit with if cryptocurrency will keep appreciating.
Except its not. If you keep record of your entries like stock its easier to buy Bitcoin because GBTC where ever it is held is no better than buying a rare pokemon card or POG.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
garlandwhizzer
Posts: 3134
Joined: Fri Aug 06, 2010 3:42 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by garlandwhizzer »

The premium is variable number. In the example given, it is assumed to be fixed up to the point when you sell so you fully recover the large premium. What the premium will be in the future is however uncertain. It depends on the interplay between buy/sell investor demand for the ETF. When the price of bitcoin keeps going up MOM investors flock to it driving up the premium to own GBTC. If bitcoin crashes, which it has from time to time, investors flee for the exists and the premium drops. It is possible under the worst of circumstances that the premium becomes substantially negative which further magnifies your losses if you sell. I don't think it wise to assume that when you sell GBTC the premium will be irrelevant. In effect premiums increase volatility potentially in both directions due to momentum herding behavior, and this volatility is added to an already very volatile asset.

Garland Whizzer
User avatar
spanky123
Posts: 136
Joined: Sun May 22, 2011 11:15 am

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by spanky123 »

Fortune Seeker wrote: Sat Jan 23, 2021 3:37 pm
drumboy256 wrote: Fri Jan 22, 2021 8:42 pm Haven't done a metric ton of research, I can safely say skip GBTC and buy Bitcoin directly. Fidelity will NOT honor the paper that you owe that is the Bitcoin in holding that Greyscale buys. So think of basically getting an IOU for something that you can never redeem.

The ONLY thing that will save Crypto (imo) in the next 12-24 months is an Index ETF that actually measures the market cap of Bitcoin and Ethereum sub-sectors. My advice is skip and buy directly from an exchange.
Big selling point of GBTC and other trusts is to have it in tax-advantaged account.
You never know what kind of income tax you'll eventually be hit with if cryptocurrency will keep appreciating.
This sounds like a nice problem. Isn't it?
fingoals
Posts: 896
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by fingoals »

balofagus wrote: Sat Jan 23, 2021 10:51 am
fingoals wrote: Fri Jan 22, 2021 8:20 pm Osprey Bitcoin Trust: https://www.ospreyfunds.io
Management fee: 0.49%
Minimum investment size: $25,000 (accredited investors only; 1 year lock-up period!)
IRA investment method: private placement (at IRA custodians that allow holding private placements)
Non-accredited investors will soon (starting February 16, 2021, it seems) be able to purchase the trust's shares on the OTC market (ticker: OBTC)

iTrustCapital: https://itrustcapital.com
Management fee (called account fee): $29.95 monthly
Crypto trade fee: 1%
Minimum investment size: $2,500
IRA investment method: create new account (traditional, Roth, SEP) and fund it (transfer existing IRA, rollover employer's plan, cash contribution)

Disclaimer: I have no affiliation with companies offering these products and this post does not represent an endorsement or recommendation.
Have you seen Choice by Kingdom Trust
No, thank you for sharing. Looks interesting and seems like a better alternative to iTrustCapital. It's a bit unclear, though, how Choice makes money ...
fingoals
Posts: 896
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by fingoals »

dru808 wrote: Sat Jan 23, 2021 4:01 pm
fingoals wrote: Fri Jan 22, 2021 8:20 pm I have recently run across two other options for holding selected cryptoassets in IRA (tax-deferred and tax-exempt) as well as brokerage accounts. For the sake of comprehensiveness, I would like to share the following brief information here (see the linked websites for details). Using any of these options is definitely not as streamlined as using GBTC, but it might be beneficial to some people (e.g. due to lower management fees [OBTC], 24/7 trading etc.).

Osprey Bitcoin Trust: https://www.ospreyfunds.io
Management fee: 0.49%
Minimum investment size: $25,000 (accredited investors only; 1 year lock-up period!)
IRA investment method: private placement (at IRA custodians that allow holding private placements)
Non-accredited investors will soon (starting February 16, 2021, it seems) be able to purchase the trust's shares on the OTC market (ticker: OBTC)

iTrustCapital: https://itrustcapital.com
Management fee (called account fee): $29.95 monthly
Crypto trade fee: 1%
Minimum investment size: $2,500
IRA investment method: create new account (traditional, Roth, SEP) and fund it (transfer existing IRA, rollover employer's plan, cash contribution)

Disclaimer: I have no affiliation with companies offering these products and this post does not represent an endorsement or recommendation.
Obtc is supposedly coming to market (otc) shortly without the minimum buy in/lockup. I wonder if this will force greyscale to lower their er.

Edit: I should read more closely. You mentioned it above. :sharebeer
No problem. :sharebeer It is still not clear to me (unless I missed it in their FAQ) whether they plan to have a premium to NAV like GBTC/ETHE or not ...
investlikebogle
Posts: 27
Joined: Sat Dec 12, 2020 8:12 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by investlikebogle »

supersecretname wrote: Fri Jan 22, 2021 9:38 am
aristotelian wrote: Fri Jan 22, 2021 9:31 am
supersecretname wrote: Fri Jan 22, 2021 9:22 am
aristotelian wrote: Fri Jan 22, 2021 9:18 am Why would you buy the ETF when you can easily buy BTC itself? It's not like gold where you'd have to store it.
You can buy in a tax-advantaged account.
I would not pay 17% annually to do so when you can usually realize gains in taxable account for less than that, or realize losses should it go down. There are also crypto IRA's out there. If I am going to take that kind of risk, no way am I giving Grayscale as 17% guaranteed return.
Grayscale doesn't capture the premium to NAV. They sell the shares to others at par, with a 6 month lockup. The premium fluctuates. In good times it's up, bad times it's down. But you are certainly not guaranteed to lose 17%, e.g. you buy + 17% and sell +17%. Yes, it's more risky than just buying BTC directly, but you can't do that easily in IRAs.
Regarding 6 month lockup that you mentioned, does it mean if I buy gbtc in taxable account, I need to wait 6 months to sell it?
bberris
Posts: 1646
Joined: Sun Feb 20, 2011 9:44 am

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by bberris »

You can sell whenever you want.
The lockup means agents who trade bitcoin for GBTC have to wait 6 months to sell. This ensures that agents don't make a quick buck and threaten the premium, and also that bitcoin always goes up. It's the way.
bberris
Posts: 1646
Joined: Sun Feb 20, 2011 9:44 am

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by bberris »

The premium is not planned or built into the fund. It may go public at a premium but after that the market determines the price. GBTC was not planned for a premium either, it just happens because of the lockup and the frenzied bitcoin demand.
occambogle
Posts: 698
Joined: Thu Dec 12, 2019 4:58 am

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by occambogle »

ccf wrote: Sun Jan 03, 2021 5:32 pm Here is a chart of the GBTC premium over time:
https://ycharts.com/companies/GBTC/disc ... ium_to_nav
The problem with the ycharts one (maybe it is just me?) is it seems to require a premium subscription. This calculator can also be used to calculate the spot premium although much less elegantly: https://crypto.neotechdevs.com/GBTC.jsp
fingoals
Posts: 896
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bitcoin ETF (GBTC): Is 17% premium irrelevant?

Post by fingoals »

occambogle wrote: Wed Feb 10, 2021 9:10 am
ccf wrote: Sun Jan 03, 2021 5:32 pm Here is a chart of the GBTC premium over time:
https://ycharts.com/companies/GBTC/disc ... ium_to_nav
The problem with the ycharts one (maybe it is just me?) is it seems to require a premium subscription. This calculator can also be used to calculate the spot premium although much less elegantly: https://crypto.neotechdevs.com/GBTC.jsp
I have not experienced any problems accessing the linked YCharts page as a visitor (using the following browsers: Firefox, Chrome, Opera, Brave).

Perhaps, it is a cookie-related issue. Try deleting cookies for that site.
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