Bitcoin Investment Trust (OTCMKTS:GBTC) is an avenue for the average retail Joe to move into bitcoin exposure. And as we all know by now, Bitcoin is the world’s biggest bubble! Or is it?
We tend to take a bit of a different angle on this incredibly popular question of whether or not the cryptocurrency space is, in fact, a bubble. In our August 8 piece, we argued that, at that time, despite many popular proclamations, Bitcoin was not a bubble. The basis for that conclusion was driven by exposure levels and the concept of “buyer exhaustion”. Our sense then, as now, is that most people are still not involved in any way in the crypto space, which gives it potentially plenty of room above if it can find the catalysts.
Bitcoin Investment Trust (OTCMKTS:GBTC) bills itself as a private, open-ended trust that is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. It enables investors to gain exposure to the price movement of bitcoin without the challenge of buying, storing, and safekeeping bitcoins.
The BIT’s sponsor is Grayscale Investments, a wholly-owned subsidiary of Digital Currency Group.
Each BIT share represented ownership of 0.1 bitcoins initially. The trust will not generate any income and regularly sells/distributes bitcoins to pay for its ongoing expenses. Therefore, the amount of bitcoin represented by each share gradually declines over time.
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As noted above, we have been skeptics of the Bitcoin-is-a-bubble theory on the basis of a lack of mainstream exposure. However, one aspect of the situation that does seem quite bubblish is the range of new coins being created every day in new ICO’s. We don’t gain confidence when we see Paris Hilton and Floyd Mayweather involved in ICO deals.
However, just this week, the Chicago Mercantile Exchange announced that it was heading for the launch of Bitcoin futures sometime in the next 2 months. That is a huge step because it grants an avenue for bigger institutional money to start speculating on alt-coins given that it grants them the ability to hedge the cryptocurrency space in general by shorting Bitcoin futures.
That could create a great deal more interest and actually boost the value of Bitcoin. In fact, we are seeing exactly that since the announcement, as BTC rips higher and out and above the $6,600 level per coin.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” Terry Duffy, CME Group chairman and CEO, said in a statement.
That interest has certainly been quite apparent. In fact, nothing has probably been quite as apparent so far in 2017 in asset markets as that statement. But, is it a bubble?
This question can be viewed from a number of different angles. On the one hand, we still do not feel that public mainstream participation is anywhere near the levels necessary to truly call it a market bubble. However, it may still be badly overpriced. After all, just because it may become mainstream as a useful alt-currency does not mean it should necessarily rise indefinitely in price in terms of its exchange rate. The increased utility doesn’t mean increased value, past a certain point.
And we can be absolutely certain that the number of new alt-currencies is absurd. The population of new cryptocurrencies has ballooned to nearly 1,250 in recent months. We assume many will end in tears. But the trend continues on.
As for understanding whether or not GBTC is in a bubble, we would see the invention of a new futures contract at the CME as a bit of a knock for GBTC because it represents a new path to exposure.
GBTC is clearly trading at a premium to strict bitcoin movement, as we have noted in the past. And we may see this premium eroded with the new avenue of trading over at the CME. As far as the action, the chart shows 25% added to share values of the listing over the past week of action. This is emblematic of the stock. GBTC has evidenced sudden upward volatility on many prior occasions. In addition, the stock has registered increased average transaction volume recently, with the past month seeing 45% over what the stock has registered over the longer term. Sign-up for continuing coverage on shares of $GBTC stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $GBTC, either long or short, and we have not been compensated for this article.