How I Made a 70% Gain Buying “Discounted” Bitcoin

America Could Soon See its First Spot Bitcoin ETF…

Like I said back in January, my grandma didn’t raise no fool when it comes to snapping up bargains.

And the bargain I snapped up—and which I suggested readers might want to investigate too—is already up 70%. Better yet, it could be headed even higher this month because of actions that would otherwise seem pedestrian at best: the rotation of federal court clerks.

We’ll come back to that little oddity in a bit…

First, the bargain I’m talking about is the Grayscale Bitcoin Trust, a simple way to own bitcoin through a traditional brokerage account… as easy as trading shares of stock. I grabbed a bunch of GBTC (the ticker symbol) because the investment community had wholesale dumped the shares and they were way too cheap.

The scandal with Sam Bankman-Fried and the collapse of his FTX crypto-exchange was still fresh in the minds of investors back in January. Moreover, the SEC was actively pushing its illogical refusal to approve Grayscale’s effort at turning the bitcoin trust into an exchange-traded fund.

That distinction between a trust and an ETF is at the crux of the discount from which I benefited.

Because GBTC is a trust, it functions like a closed-end fund, meaning its share price is determined by investors buying and selling it. If investors are bullish, they can push the value of the trust to levels that exceed the underlying value of the bitcoin inside the trust. Conversely, if they’re bearish, they can push down the value of GBTC to well-below the intrinsic value of the bitcoin that the trust holds.

At that particular moment in January, rampant capitulation saw GBTC plunge to a nearly 50% discount. I stepped in and bought some at $11.88 per share when the value of the bitcoin inside the trust was worth about $23 per share.

I mean, who wouldn’t want a valuable asset at half its intrinsic value?

Seemed a no-brainer, despite the risks.

As I write this, GBTC trades for about $20.12, a very sweet 70% gain in seven months.

But as I noted at the top, August could see the trust head even higher, closer to today’s intrinsic value of $26.44 per share. And that’s because of a quirk in the court system.

See, court clerks rotate in and out of judge’s offices. And in the D.C. courts, August is the month for clerks to rotate in/out. As that happens, the existing clerks push their judges to clear the docket before the new clerks rotate in.

Well, GBTC has been in a legal fight with the SEC for what seems like eons. Grayscale wants to turn the trust into an exchange-traded fund, or ETF, that tracks bitcoin’s spot price, the price you see quoted every minute of every day on exchanges.

Unlike a trust, an ETF is “marked to market” every day, meaning that the ETF’s quoted price matches the underlying, per-share value of all the assets inside the fund.

In short: As an ETF, GBTC’s share price would instantly jump to that underlying value of $26.44 (assuming the conversion happened right now).

The SEC, however, has steadfastly and continually denied Grayscale’s attempts to convert the trust into an ETF, and for an absolutely nonsensical reason.

The SEC contends that bitcoin’s spot price is too susceptible to market manipulation.

Yet, the SEC has allowed an ETF that tracks bitcoin futures, which are far more volatile than spot prices. More relevant, though, is this fact: Futures prices derive from the spot price. So, umm… yeah, if you have a problem with spot-price manipulation, then you reflexively must have a problem with futures prices.

Anywho…

The GBTC/SEC rumble last had oral arguments in a D.C. Circuit Court back in March, more than 160 days ago. Of the combined 32 cases the D.C. court heard between March 2021 and March 2022, 30 of them were decided within 160 days.

And with court clerks about to rotate in/out again, there’s a good chance that the court will hand down its ruling. A ruling in favor of GBTC would see the price immediately surge. A ruling in favor of the SEC would see the price sink.

Which will it be?

Hard to say, of course.

But the SEC over the summer lost a high-profile case against the cryptocurrency known as Ripple, or XRP, with the courts saying the SEC was misapplying the Howey Test (a test to determine whether or not an investment is a security that would therefore fall under the SEC’s purview).

Moreover, the SEC has received at least six applications for bitcoin spot-price ETFs in recent months, including from two of the heaviest hitters on Wall Street: BlackRock and Fidelity. And political and legal voices are growing increasingly loud in calling for the SEC to stop acting like a 19th century Luddite and work with the crypto industry to fashion logical and useful laws, instead of applying ancient regulations ill-suited to modern technology.

My bet is that the SEC is feeling boxed in, and that the only way it can relieve some of the pressure is to approve a spot-price ETF. Once it does, the floodgates will open, and it’s going to be very hard for the SEC to single out GBTC and not allow it to convert into an ETF as well.

So, the next couple of weeks will tell us a lot. Assuming the D.C. court uses August to clear its docket before the new clerks arrive, we could very well have the first bitcoin spot-price ETF in America, or at least a clear path toward one.

When I bought GBTC in January, the discount was close to 50%. Today, that has narrowed to just 24% because investors increasingly suspect the SEC is going to have to back off its idiotic and inconsistent take on a spot-price ETF.

Still, that’s a fine discount.

And frankly, you can’t go wrong owning bitcoin long-term at a generous discount.