Bitcoin Is Back Baby!

A look at some crazy trading in a new exchange traded product.

After a huge run in the last couple of months, Bitcoin has gone even more parabolicker in the last couple of days taking $10,000 on Friday night and spending a little time above $11,000 on Saturday. I have been fascinated with Bitcoin and the cryptocurrency concept for a while. Faster and more secure financial transactions are of course going to happen but we are not there yet and there is nothing that says any of the current cryptos have to be the solution despite what the many touts on Twitter and elsewhere say. This is an important point, there is nothing that says Bitcoin must be the solution for anything. Grayscale Investments (more on them in a bit) has launched the Drop Gold marketing campaign in support of its investment products that track various cryptos.

Every reason they cite for gold on its way to irrelevance (or why it is already there?) could be correct but that does not mean Bitcoin must be the answer. There's no connection even though they say there is. For the record, I do not believe gold is irrelevant. The leaps of logic justifying Bitcoin and the others are continuous and nonsensical. Just because they are now nonsensical does not mean Bitcoin won't be everything the touts claim. I don't know. They don't know. No one knows.

It is that reality that creates the asymmetric risk opportunity that exists with Bitcoin and some (many, all?) of the others. The touts, remember they could turn out to be right, see Bitcoin going to six figures, maybe higher. A relatively small amount speculated in Bitcoin (this is no investment, it's all speculation) that goes to zero will not ruin a financial plan but if it does go to $1 million or some other crazy sounding number it could have a substantial financial benefits, life changing benefits; asymmetry.

On a related note, the Grayscale Ethereum Trust (ETHE) just became available for secondary market trading on Thursday. I'd been awaiting it, planning to do a quick trade expecting there'd be a pop. TD Ameritrade had been showing indicated quotes and the offer had been in the $300's. I had no idea if that was going to be close to right or not. There was some volume on Thursday in the $300's so ok, that indication was kind of close. The Grayscale products are not ETFs, the premium (or discount) to NAV can be huge and you need to know how much the premium is in order to make an informed decision on purchasing. When I looked on Thursday I saw market price $300.00 and ETH holdings per share $25.88. I wondered if it was a mistake, maybe it was ten ETH per ETHE share, a $50 or 20% premium would be massive but not unheard of relative to Grayscales other exchange traded vehicles. It was no mistake. This morning it looks like this;

So on Friday, Ethereum went up 5% and ETHE went up 75% to trade at a 1900% premium (thanks to Eric Balchunas for that math). When I first looked it was more than a 1000% premium, I've never seen anything like this and decided not to take that flyer. A premium like that, you're not speculating on Ethereum you're speculating other people's irrational greed. That's not my trade.

On thread I saw about Bitcoin claimed that there was a fiduciary obligation for advisors to own it for clients. No there isn't. There is nothing underlying it. I realize that decentralization is one of the huge potential benefits but for now it remains something created with computer code several years ago that a relatively small contingent of people claim is money, claim is the next step in the global monetary system. Those claims don't make it so, fully conceding the could be right but then reiterates the point that this is still far more about speculation than anything else.

Another marketing gimmick is the slogan to be long Bitcoin and short the bankers which tries to make the point that Bitcoin is the future. Bitcoin going to $100,000 or $1 million would seem to undermine the premise. That kind of volatility detracts from the utility of Bitcoin as a potential medium of exchange.

I continue to sit on my position in Grayscale Bitcoin Trust (GBTC) that I bought in December. I got lucky with that but for now it is far from a life changing piece of money so I plan to keep holding. If the touts are correct about Bitcoin going to $500,000, that would be enough to greatly improve our finances but it remains to be seen whether I could hold on to all of it if it got to $100,000 or $200,000. If it ends up going to zero from here, a distinct possibility, the loss wouldn't trigger waves of regret like it would if it went to $150,000 and then zero.

My thesis has been and continues to be that zero is just as plausible as some huge, huge number, if you have to go in keep it small, a dollar figure you can stand to lose and if it grows to a life changing piece of money, sell it and let it change your life.

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