GBTC Trades, And The Market Yawns

In the May 4th Crypto Trader Digest, I discounted the launching of GBTC because there had been no trades. Yesterday the first trade on GBTC occurred at a price of $42. Since each share represents 0.1 Bitcoin, that equates to a Bitcoin price of $420 or a 75% premium to the prevailing spot price at the time.

Many in the Bitcoin community were waiting for the first GBTC trade to initiate the resurgence of a bull market. However, the market digested the news and FELL. During US hours on May 4th, the price hovered around $240. Early morning May 5th, the price fell to a low of $231. GBTC while a step in the right direction for the investability of Bitcoin, has serious shortcomings that prevent it from being the catalyst that everyone wishes it to be.

As I have said previously, it is impossible to arbitrage the premium between GBTC and spot. The arbitrage mechanism is what would trigger a price rise. The buying pressure that leads to a premium over Net Asset Value (NAV) needs to find it’s way into the Bitcoin spot market. That happens when market makers, sell GBTC, buy Bitcoin, and deliver the Bitcoin to the fund manager in return for shares of GBTC. That allows the market makers to capture the premium. Even if GBTC had significant volume (only a handful of shares traded), the fund structure prohibits the creation of shares by tendering Bitcoin or cash to the fund manager within two settlement days. The creation process must happen within two settlement days to match the delivery of GBTC shares to the buyer. Then the sale by the market maker will be considered a long sell and not a short sell, which requires the trader to borrow the shares before selling on the open market. Currently it takes one year to create new GBTC shares.

GBTC will not save Bitcoin from the jaws of the bears. The premium it trades at is interesting, but not significant. If the first GBTC trade was your bull market thesis, it is time to go back to the drawing board. GBTC traded, and the market yawned.