FISCAL/MONETARY UPDATE – BITCOIN ALERT! A PERPETUAL MOTION MACHINE!

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FISCAL/MONETARY UPDATE (extra edition) – BITCOIN ALERT! – A PERPETUAL MOTION MACHINE!

We’ve written before about  Bitcoin. Suffice to say that we prefer gold as a store of value and unit of exchange (a currency). We suspect, actually believe that, when books are written about the financial follies of the early twenty first century, the rise of bitcoin and thousands of other cryptocurrencies will be one of the ringing bells signifying  the end.

That conviction aside: How’s the following for a perpetual motion machine?

The Grayson Bitcoin Trust (GBTC) (to quote Bloomberg) “is an open-ended grantor trust based in the U.S. The Trust’s shares are the first securities solely invested in BTC (Bitcoin). The objective is for the BTC Holdings per Share to track the BTC market price, less fees and expenses. Eligible accredited investors can invest in the private placement at the daily BTC Holdings per Share”

GBTC sells at a 43% premium to the value of the Bitcoins in the Trust. The more shares that are bought by investors, and issued by the Trust, the more Bitcoins need to be acquired for the Trust price to track Bitcoin. The number of shares in the Trust has steadily increased, from 490,000 in late October to 606,000 today. That means 116,000 new shares were issued and, based on today’s price of $31.00, would create a demand for $3.6M worth of Bitcoin. The beautiful thing is that the Trust continuously advertises the attraction of Bitcoin as an investment, which attracts new investors to GBTC, which requires more shares to be issued, which requires more Bitcoin to be bought, which  drives the Bitcoin price higher.

To be sure, $3.6M worth of buying over a couple of months is from huge these days, and the market value of GBTC , at $145M, is small by today’s standards, but GBTC is growing and incremental  buying, in any commodity, especially on a regular basis, can be more instrumental than it seems to the price of any commodity.

It’s a beautiful thing! Until the process reverses.

Roger Lipton

P.S. – This process, by the way, applies similarly to the more than 5,000 ETFs out there that represent trillions of dollars worth of stocks and bonds. The ETFs don’t have a 40% premium to play with but all the money managers that prefer ETFs to picking individual stocks do that job for them.