GBTC. Part 1.
GBTC. 2021.
Hey Ho! Loomio here, ur favourite blueberry. I think. I hope. Anyways, I’m.. pretty financial. It seems people have forgotten that good old loomy has worked for multiple funds back in his day, at almost all ends of the finance spectrum.. I’d like to say I have a fairy good grasp of how markets work, but to further enforce this I will be featuring tweets from myself all along this article. Rest assured, while these are like…10% for me to brag, they’re also just 90% to show that these aren’t hindsight statements from someone putting things together after the fact, and to help explain that I’m not coming at this from a blind stance. These are things I actively warned people about before they happened. And got called a retard for doing so btw lol.
This will be 1 of a 3 piece publication. We will cover $GBTC up until may 2021 here. The next piece will cover $GBTC in 2022–2023, and the 3rd piece will briefly cover 2024 GBTC, and then whats next for $GBTC.
So, wtf is gbtc?
Ok. So the easiest explanation is that there was no way for someone to trade bitcoin on the legacy trading system (stock market etc.) Then Mr Barry Silbert created Grayscale, a company that sets up funds. These funds are then able to be publicly traded. Now, if a fund is filled up with bitcoin, and only has bitcoin in it, then you can expect it is effectively “bitcoin”. boom! You now have a way for people to be able to trade bitcoin on public markets! The thing is, the way GBTC works is that to get GBTC shares you have to lock bitcoin up into the trust, and then wait 6 months to get your GBTC shares. Now, that 6 months wait is the important part here.
Now, all of the people playing the deposit game for the premium were one of two camps.
The first camp is funds.
US funds were using this one quick trick to mark their books up drastically. That is the trick of converting BTC on your books to GBTC. Buy BTC for however much, immediately pummel it into GBTC, you can now say you have an asset (with a 25% premium to gbtc in november) worth 25% more!
Now, a bit of speculation on this (and this part I’m unsure of. I kind of don’t think it was the case as obviously this was an action more performed by small shops looking to raise decent, so actual books dont matter that much) but my assumption is that the people doing this trade wern’t hedging $BTC downside. But, there is a small chance they were, and so once they realised they were effectively naked short $BTC with $GBTC not actually entering their accounts in a tradable way till 6 months time, some of them probably got nuked on the pump afterwards and had to liquidate or such, meaning the second the unlock happened they *had* to sell to get any level of liquidity to pay back the loan/debt/liquidation/etc etc etc.
https://x.com/loomdart/status/1327795463186223105
The second camp was crypto people/projects. These guys did care about the BTC price. They saw this huge premium and saw a way to get more future money for their current money. And EVEN better than that? A way to have your yield generating company to increase TVL and customers by being able to give them this premium! Amazing right! For MONTHS blockfi promised insane $BTC yield due to this beautiful premium, taking lots of customer funds and yeeting them into the “arb” trade.
A big part of the rally that occured in $BTC prices over november 2020 were mostly attributed to this GBTC buying.
Ultimately the evidence presented here proves that $GBTC was a large contributor to the November-December bitcoin bull market. Which means a metric shitload of $GBTC was set to unlock 6 months from then.
Chaos and pandemonium:
Now, we move to May 2021. For those of us good at maths, November to May is… 6 months. The exact lockup period we discussed before. And the people we discussed before, the funds that bought $GBTC to purely window dress their books.. got their unlocks. Now, these people didn’t have any allegiance to $BTC. They didn’t care about $BTC atall. It was a way of marking up their books to get future fundraises. And it accomplished that goal. So, what do people who dont care about something do when they get that something? Well, they sell.
They just wanted out. So they sold. It was fairly simple. This caused a very drastic amount of sell pressure on the price. Leading it to go down very quickly. Not good. Very not good. prices collapsed and the collateral damage was huge.
Projects like blockfi who had raised yuuuuuge on the back of all their aum, were… fucked. Their whole value prop was we can multiply your btc with the beautiful magic of gbtc. They now had an army of customers expecting premiums, when in reality gbtc was at a pretty hefty discount. not good. More on this next time.
So, all in all, this article was intended to give you a decent overview into the early 2021 impacts and aspects of GBTC. I will focus on 2022–2023 for the next piece, as there is some very unique and fascinating black swan events that occured in 2022 that helped this ugly monstrosity go turbo demon mode.
EDIT 1:
This is a good question I think lots of people will have. Think of it mostly like this. If you have spot bitcoin and you see that $ GBTC is trading at a 20-30% discount, you can effectively sell your spot bitcoin and buy this discounted bitcoin. Which alot of people did. Some people run cross margined books, some people took loans. Loans that were called when gbtc collapsed (they would have to sell other crypto assets to cover these loans) cross margin books (once gbtc collapsed their other shit got liquidated to cover the loss) etc etc etc. There was no direct arb between gbtc and btc (which was the cause of the problem in the first place) but there were enough correlating factors in the mix to where while not first order impacting btc price action, gbtc had a material ability to cause movement on bitcoins price. (not to mention people probably shitting their pants as this bitcoin backed fund was collapsing, and fear is never good, causes people to sell.