Bitcoin at $100,000 is Nowhere Near Its Ultimate High

This Court Ruling Marks a Stepping Stone Toward Seven Figures for Bitcoin

So nice when the movie follows the book.

To wit: This week, a federal district court in D.C. ruled on the fisticuffs between the Securities and Exchange Commission and Grayscale Bitcoin Trust. More importantly, the court ruled in favor of Grayscale.

That is the exact script I wrote earlier this month, when I sent you a dispatch explaining that because of a quirk in the timing of court clerks moving on to new postings each August, the courts were very likely to clear their dockets of any remaining, unresolved decisions. The SEC vs. Grayscale fight had been dragging on for many a month and was one of the very last unresolved cases.

That dispatch, in turn, was an update on a dispatch I sent back in January, when I wrote that I’d put some of my retirement-account money to work in Grayscale Bitcoin Trust because the shares were just too darn cheap relative to the underlying value of the bitcoin held inside the trust (I’ll explain in a moment).

The upshot: The shares I bought at $11.88 now sit at $20.56 as I write this, a very nice gain of 73% in seven short months.

Picking Grayscale out of the haystack of stocks back in January was not terribly difficult. Actually, it was terribly obvious.

At that time, the trust was trading at a nearly 50% discount to the value of the bitcoin inside. That was a ridiculously large and illogical chasm. So, I bought the granddaddy of crypto at half-off. For anyone old enough to remember K-Mart Blue Light Specials, you’ll reflexively understand the bargain.

This was a no-brainer investment for several reasons. But the one that mattered most was that the SEC was destined to lose. It was only a matter of time. And I was willing to buy cheap, sit on my hands biding time, and reap the profits while all the pieces of this movie fell into place in the final act.

As I explained in those previous dispatches I mentioned above, this opportunity arose because of the funky structure of a trust vs. an exchange traded fund—an ETF.

Trusts on Wall Street trade like closed-end mutual funds, meaning supply and demand (investor buying and selling) determine the price—just as with traditional stocks. Regardless of the value of the assets the trust holds, the shares can trade at prices above or below the underlying asset value.

ETFs, however, are “marked to market” every day. Their price reflects the underlying value of the assets inside the fund. If the assets are worth $23.18 per share, then each share trades at $23.18.

Grayscale has been seeking to turn its trust into an ETF based on bitcoin’s spot price—the price you see quoted on exchanges. America does not have a spot-price bitcoin ETF because the Voldemort of the SEC, Gary Gensler, has a burr under his saddle about crypto for reasons I’ll address some other time.

Because the SEC has been perennially dismissive toward Grayscale’s efforts, investors were uncertain that the SEC would ever allow Grayscale to convert from into an ETF. Nor were investors convinced that Grayscale would win its lawsuit against the SEC.

In short, investors were racked by uncertainty, ennui, and impatience.

They sold—to such a degree that they pushed the trust’s share prices to just half the value of the bitcoin the trust held.

I knew that was a mistake, so I bought some.

And I won.

I was not racked by uncertainty, ennui, and impatience. I was filled with certainty, bullishness, and a patience based on the fact that the SEC’s stance was illogical, and that the SEC would ultimately have to allow a spot-price bitcoin ETF.

All fine and dandy, but now we’re into the much harder phase known as “Yes, but what have you done for me lately?”

By which I mean: What’s next for Grayscale and bitcoin?

Well, Grayscale is still selling at a slight discount. The shares, as I noted above, are priced at $20.56, but the bitcoin the trust owns is valued at $25.09 per share. That’s a much narrower 18% discount. It exists because the market is building in a small risk premium in the event that Gensler has a tantrum and appeals the decision (which he will lose because, again, the SEC’s stance is illogical).

Ultimately, Grayscale Bitcoin Trust will morph into Grayscale Bitcoin ETF. The discount will go away, and the ETF will track bitcoin’s spot price.

Which is why I have not sold the shares of the trust that I bought in a retirement account back in January. I know bitcoin is going much—much!—higher from here. We’re going into an event next year that historically has seen bitcoin prices surge. I’ll write more on that soon.

All I will say here at the end is this: Bitcoin $100,000 isn’t the ultimate high.

It’s just a stepping stone toward seven figures.

I’ll be riding my Grayscale holdings all the way up.