Buying GBTC at current prices is a recipe for disaster.
GBTC is a Bitcoin Investment Trust traded on the OTC markets in the U.S.
On first glance that sounds like a great way to gain exposure to the cryptocurrency industry via more traditional investment vehicles.
One doesn't have to go through Coinbase, Poloniex, Bittrex, or any one of the large number of exchanges out there that seem to get hacked or have security issues almost weekly.
Sounds great on the surface, but what is GBTC?
GBTC is a Bitcoin investment trust, created in 2015, it was the first publicly traded investment vehicle of it's kind.
It buys and holds Bitcoins giving investors the option of buying the fund instead of the buying the underlying asset directly.
It is one of the few legitimate options like this out there.
Since it is a trust, purchases and sales can only happen 1 time per day, at the close. Not at market prices during the day like a stock.
That is where an ETF hoped to find it's niche, but that is a story for another day.
What is the problem?
The problem with buying GBTC has nothing to do with it's underlying fundamentals, but instead, the problem lies solely with its price.
Currently GBTC has 174,174 Bitcoins, which equates to roughly an $836 Million dollar valuation.
That is a problem when the current market cap of GBTC is roughly $1.5 Billion USD.
That means that GBTC is currently trading for roughly 2X it's current asset value.
There are likely many reasons for this, but the big take away should be that GBTC is trading at an unsustainable valuation currently.
What does this mean?
This means that Bitcoin would need to double in price to catch up to GBTC's current price.
The more likely scenario will be that when the popularity around Bitcoin dies down or when more similar investment vehicles come to market the price will drift back towards it's actual net asset value.
Which would be roughly a 50% haircut from current levels.
That means that anyone buying GBTC currently is buying an asset that is trading for 2X its market value.
Nothing good can come of that investment strategy...
Stay informed my friends.
Sources:
http://www.marketwatch.com/story/the-wall-street-investor-who-sank-valeant-thinks-a-bitcoin-fund-is-the-most-dangerous-2017-08-31
Image Sources:
https://depositphotos.com/16792605/stock-photo-warning-sign.html
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