BITCOIN INVESTMENT TRUST GBTC S
October 27, 2016 - 10:16pm EST by
Napoleon
2016 2017
Price: 99.00 EPS 0 0
Shares Out. (in M): 2 P/E 0 0
Market Cap (in $M): 178 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 178 TEV/EBIT 0 0
Borrow Cost: Tight 15-50% cost

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Description

 
Bitcoin Investment Trust (GBTC) is "the only U.S. publicly traded vehicle that holds bitcoin," it
currently trades OTC and exists to hold bitcoin and serve as a tracker of its “value.”
 
Due to its recent creation and the novelty / utility of being the only bitcoin fund, GBTC is trading
at ~155% of NAV. The premium started to widen out in May, but really spiked in early June
which was when the "Brexit" news cycle really started picking up (and speculators started
pouring into bitcoin).
 
The fund is backed by bitcoin in a ~.094 bitcoin to share ratio, but there is a better way to hedge
the product than through bitcoin itself – directly buying shares of the fund in an ongoing
additional share offering provided by the sponsor, which lets you purchase at NAV.
 
Participating in an additional share offering would enable the purchase of restricted shares at
NAV (currently $63.90). As the shares are restricted, the arbitrage opportunity requires shorting
the publicly traded GBTC and waiting a year for the restricted shares to become fully tradable
before the spread automatically collapses for the investor.
 
While participating in the additional share offering allows for one to “force-collapse” the spread,
we think the fund is likely an outright short given insiders and other direct investors who own
restricted shares will likely soon be unloading to take advantage of the premium. Additionally,
the Winklevoss twins are finally advancing in their plans to make a bitcoin ETF (which will be
listed on a major exchange).
 
 
You can see NAV vs market price here:
 
 
 
 
Participating in the additional share program (at NAV):
 
Qualified accredited investors** can choose to invest directly in the Bitcoin Investment Trust at
the applicable NAV per share. The Bitcoin Investment Trust’s shares are subject to significant
resale and transfer restrictions.”
 
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

  • Spread automatically collapses if one chooses to participate in the ongoing additional share offering.
  • Insiders and others with restricted shares, if rational, will sell once unrestricted (one year restriction due to rule 144a).
  • Creation of more bitcoin derivative products.
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    Description

     
    Bitcoin Investment Trust (GBTC) is "the only U.S. publicly traded vehicle that holds bitcoin," it
    currently trades OTC and exists to hold bitcoin and serve as a tracker of its “value.”
     
    Due to its recent creation and the novelty / utility of being the only bitcoin fund, GBTC is trading
    at ~155% of NAV. The premium started to widen out in May, but really spiked in early June
    which was when the "Brexit" news cycle really started picking up (and speculators started
    pouring into bitcoin).
     
    The fund is backed by bitcoin in a ~.094 bitcoin to share ratio, but there is a better way to hedge
    the product than through bitcoin itself – directly buying shares of the fund in an ongoing
    additional share offering provided by the sponsor, which lets you purchase at NAV.
     
    Participating in an additional share offering would enable the purchase of restricted shares at
    NAV (currently $63.90). As the shares are restricted, the arbitrage opportunity requires shorting
    the publicly traded GBTC and waiting a year for the restricted shares to become fully tradable
    before the spread automatically collapses for the investor.
     
    While participating in the additional share offering allows for one to “force-collapse” the spread,
    we think the fund is likely an outright short given insiders and other direct investors who own
    restricted shares will likely soon be unloading to take advantage of the premium. Additionally,
    the Winklevoss twins are finally advancing in their plans to make a bitcoin ETF (which will be
    listed on a major exchange).
     
     
    You can see NAV vs market price here:
     
     
     
     
    Participating in the additional share program (at NAV):
     
    Qualified accredited investors** can choose to invest directly in the Bitcoin Investment Trust at
    the applicable NAV per share. The Bitcoin Investment Trust’s shares are subject to significant
    resale and transfer restrictions.”
     
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Messages


    SubjectBorrow cost?
    Entry10/28/2016 08:30 AM
    Membermrmgr

    Doesn't the borrow cost destroy the "force-collapse" spread?

    You list 15-50% borrow costs. At NAV / price of 65% and a full year for the restricted to become unrestricted, doesn't the arbitrage more or less disappear? You can lock in 35% downside, but might have to pay 15-50% to get it...


    SubjectRe: yeah
    Entry10/28/2016 01:09 PM
    MemberNapoleon

    Yes borrow is tight; I should have included in the writeup that this is likely only suitable for PA's (especially given nature of the private placement arm of the arb). 

     

    Shares come and go, but I typically see about 2,000 shares come online for borrow each week or so at not egregious borrow rates. It is unfortunate that more borrow cannot be secured - and is likely a reason why the spread exists. 

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