Grayscale Bitcoin Trust (OTCQX: GBTC) stock should track the bitcoin (BTC) price. GBTC stock doesn't track the bitcoin price - so, should we regard this as a problem or not?
Start from the beginning, Grayscale is simply a holding of bitcoin. Or at least that's what it's supposed to track, even though it gains access to that performance through derivatives and so on. Well, that's fine, having something we can trade in and out of quickly that mimics the price movement of bitcoin is a useful addition to the trading armoury. But the problem is that it doesn't, in fact, mimic the bitcoin price.
There's a substantial discount from the GBTC price to the nominal value of the bitcoin holdings. Even that's not a terrible problem if the discount stays static. But even that's not true. The discount varies over time. So Grayscale would be imperfect even as a trading hedge. Maybe still useful, but imperfect.
Grayscale Bitcoin Trust stock price from OTC
At close last Friday BTC was at $27,900 or so. Now it's $28,061. A change of 0.5% perhaps, or even we could just call that flat. But GBTC is up 6.5% over that some time period. Clearly GBTC isn't tracking bitcoin very well.
We've talked about GBTC before: “Grayscale Bitcoin Trust (OTC: GBTC) stock was up 14% on Friday on the idea that Blackrock might be entering the Bitcoin ETF space. Yes, we can see what the thought is behind that, a validation of the concept and therefore a rise in that valuation. However, it's also possible to argue this the other way around. GBTC is an expensive way of holding Bitcoin, competition will lead to an outflow of funds and therefore a reduction in that valuation. We agree, this could go either way - as so often there are two opposing forces and the net position is uncertain.”
If Grayscale isn't tracking the bitcoin price - or even if the discount to the objective value is changing - then it's a less than perfect hedge as above. On the other hand it becomes a speculative vehicle in its own right over the existence of bitcoin ETFs and the validation of the sector. Perhaps.
As long as we know which purpose we're using it for our trading program should be OK. But we do need to make that distinction.