A “Once-In-A-Lifetime” Investment

Many a moment arose in my son’s teenage years when I just wanted to wring his neck. Kids do some really dumb things that cause parents an inordinate amount of upset.

But then he grew up to be the person he is today, and I am a parent who could not be happier.

That’s the way it goes with a lot of things in life: pain, suffering, anger, frustration… and in the end, it’s a bright and sunny day. You survived the storm to reap the rewards.

And now the incongruent segue into bitcoin.

The granddaddy of crypto is having a moment—in a bad way.

But I’ll cut to the chase here, because you know where the chase is going.

Do yourself an immense favor and buy bitcoin now (or add to your holdings).

What’s happening right now is one of those exogenous events I talk about—something going outside of bitcoin itself that has—temporarily—driven down the price. Buy now when it’s relatively cheap and you will reap vast profits.

But back to bitcoin’s bad day…

See, here’s what’s going on:

The Securities and Exchange Commission recently approved the first bitcoin spot-price exchange traded fund, or ETF. This is an ETF that tracks the ever-changing price of bitcoin. The SEC had long rejected the many ETF applications it had received from various financial giants in the past.

Once approval for this one occurred, a unique bitcoin investing moment occurred: The Grayscale Bitcoin Trust. This is an investment somewhat similar to an ETF, except that is not an ETF. It’s a trust. I won’t put you to sleep enumerating the differences. I will just tell you that in the wake of the SEC’s approval, Grayscale converted the trust into an ETF.

And that unleashed a flood of selling, which is what is weighing on bitcoin’s price.

Like I said, it’s an exogenous event that has zero to do with bitcoin as an investment and everything to do with savvy investors taking profits, and others seeking cheaper management fees.

Let’s start with the savvy investors.

A year ago yesterday, I sent you a dispatch about why I was buying the Grayscale Bitcoin Trust. Because of the way the trust operated (basically, because it wasn’t an ETF at that point) the shares were always sold at a discount to the value of all the bitcoin inside the trust. I bought in at a 41% discount, and I wrote that the day the SEC allows Grayscale to convert to an ETF, “the share price will instantly—and I do mean instantly—reflect the underlying value of the bitcoin it holds.”

And that is exactly what has happened.

The discount evaporated in heartbeat. Now, the discount is less than half a percentage point.

Why that plays into bitcoin’s recent weakness: Those savvy investors who bought the trust at a massive discount have made equally massive gains in just a year. I bought the trust at $12.88 per share. Today, it’s north of $35, and topped $40 about 10 days ago.

That’s a roughly 200% gain in a year. Huge!

So, lots of investors have been selling Grayscale to lock in big profits. Who can blame them?

One of the biggest sellers was the custodians for FTX, the crypto exchange that collapsed under the weight of Sam Bankman-Fried’s fraud in late 2022. FTX has sold $1 billion worth of the Grayscale trust to recoup some of the principal investors lost in the collapse.

And then there are the investors seeking cheaper management fees.

Other investors have sold Grayscale to switch to new ETFs with lower fees. Grayscale’s fees are 1.5%. BlackRock’s new bitcoin ETF charges just 0.25%. The ARK 21Shares Bitcoin ETF fee is just 0.21%. Not all the money that exited Grayscale has yet found a new bitcoin ETF home.

The upshot of all of this is that bitcoin’s price right now is the result of an exogenous event, flavored in large part by a fraud perpetrated in 2022. I won’t play the what-if game; it changes nothing. But it gives you a sense of why bitcoin has struggled in wake of the SEC allowing spot-price ETFs to exist.

The ETF approval turned out to be a “sell the news event” because it unlocked all that value hidden in plain side inside the Grayscale trust.

At this point, the selling is largely done. And we’re going to see money that came out Grayscale makes its way back into other ETFs, like BlackRock and ARK and others.

Plus, we have the bitcoin halving coming up in April. That event—a technical event that makes mining bitcoin twice as hard—has occurred three times since 2012. And each time saw bitcoin race to what were then all-time highs. Gains were between 688% and nearly 10,000%.

This time is going to be no different.

Bitcoin, now in the $40,000 range, will climb past $100,000 and, I’m betting, will touch $185,000 before this new bull market in crypto ends.

So that’s why I say: “Do yourself an immense favor and buy bitcoin now (or add to your holdings).”

Bitcoin is an asset unlike anything the world has ever seen. It’s a “once-in-a-lifetime” investment. Those who understand that are going to amass wealth greater than they expect. Those who don’t understand that will sit on the sidelines as wealth passes them by.

As with my son, teenage bitcoin (it’s only 13 years old) is the source of pain, frustration, and suffering. But it’s going to grow up, and you’re going to be very happy with the result.