For those (like me) that have invested in the Bitcoin Investment Trust, now may be the time to start getting concerned about the premium over net asset value. Investors have largely ignored the fact that they are paying a steep price well above the actual Bitcoin value held by the trust. The premium has varied, but is presently at more than 50 percent. That means by participating in the trust at this price level, you are ostensibly paying $15,000 for Bitcoin when it is only trading at $10,000.
Source: Screenshot From YCharts.com
With the Bitcoin Investment Trust being the only game in town for investors to access the cryptocurrency through the securities markets, perhaps this premium is understandable for now. From all news reports, however, it appears that Bitcoin options will begin to trade on the Chicago Board Options Exchange on December 18. Not only will the Bitcoin options provide a more stable market, but they will quickly usher in several new Bitcoin funds.
One of the primary reasons that the Winkelvoss Bitcoin fund was turned down by regulators was the absence of a stable market (typically created by short sellers and options speculators). If, in fact, Bitcoin options do begin to trade in just three weeks, this will be very bad news for the Bitcoin Investment Trust. What could very well happen is to see the trust drop substantially in value, even if Bitcoin continues to rise. Many will be left scratching their heads when this correction takes place. I have no doubt this correction is coming, and the higher the premium goes, the more steep the correction will be.
In a nutshell, the Bitcoin Trust premium can not be sustained at this level as new Bitcoin funds enter the market. I am not the first or certainly the last that will warn about this premium, but I am now sounding the warning for those still not aware that the Emperor may not be wearing as many clothes as it appears.
James Paris
Chief Instructor
BitcoinWorkshop.US