Last week, it was possible to buy bitcoin at a discount — a rare opportunity. But if you know what to watch for, this opportunity might present itself again.
Investors can buy bitcoin in a number of ways. It is available through several exchanges. Some brokers offer access to cryptocurrencies, including bitcoin. It’s also available through futures contracts. Recently, it became available through an investment that is similar to an exchange-traded fund (ETF).
Grayscale Bitcoin Trust (OTC: GBTC) is a convenient way to buy and sell bitcoin. Some investors can buy shares directly in the trust, which then buys bitcoin. These investors must be accredited, a process that verifies the investor has significant assets.
To increase access for less affluent investors, Grayscale registered with regulators so that the trust can trade on an exchange.
While GBTC is like an ETF, there is an important difference. An ETF generally trades at a value that’s within a few cents of the value of the stocks it owns. GBTC can trade at a premium or discount to the underlying investment.
The chart below shows that GBTC has traded at a premium to its net asset value (NAV) for most of the past six months. On December 21, for example, GBTC was at a 40% premium — meaning investors were paying $1.40 for $1.00 worth of bitcoin.
GBTC Premium to NAV
GBTC Dips May Hold Opportunity for Bitcoin Investors
Over the past five years, GBTC traded at an average premium of 38%. The premium has been as high as 132%. Occasionally, it’s been available at a discount. The largest discount was 11.6% which meant investors were paying $0.884 for $1.00 worth of bitcoin.
Because bitcoin has been in a bull market, many investors who overpaid still recorded a profit. Smart investors shouldn’t count on that bull market to continue. They should consider buying GBTC when it trades at a discount.
Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at the New York Institute of Finance. Mr. Carr is also the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.
