How I Snapped Up a 40% Discount on Wall Street

My grandma didn’t raise no fool. You see a bargain, you buy it. 

Which is why I went shopping on Wall Street last week. 

Now, to be clear, I have not been adding a huge amount to my stock portfolio lately—just a few, select income-oriented shares. Primarily, my buying has centered on adding to my portfolio of cryptocurrencies because I sense we’re on the cusp of a new crypto bull run, and when it starts running, crypto prices are going to soar higher. 

To that end, the bargain I snapped up last week is a Wall Street/crypto mashup: Grayscale Bitcoin Trust. 

This is a hybrid animal—a trust that owns nothing but bitcoin and which trades on Wall Street.  

Grayscale hopes to turn the trust into an exchange-traded fund (similar to a mutual fund), but all of its efforts at doing so thus far have been brushed aside by the Securities and Exchange Commission, which has been loath to allow any financial firm to offer such a bitcoin ETF. 

And that is precisely why I bought this particular trust. 

See, because the SEC has been so paternalistic in not allowing grown adults to invest as they see fit, the Grayscale Trust’s price has decoupled from the underlying assets (that big ol’ bag of bitcoin) that the trust owns. The reason: There’s no way currently for investors to redeem their holdings of bitcoin inside the trust, so investors have priced the wrapper (shares of the trust) at a discount to the underlying assets to which they have no access.  

As I write this, each share of the trust is the equivalent of 0.00091202 pieces of bitcoin, worth $20.99 at bitcoin’s current price just north of $22,900. 

Yet the trust is trading on Wall Street for $12.28. 

Do that math, which is what I did, and you realize that you can buy bitcoin at a 41% discount to its market price. 

Like I said, Granny did not raise a fool. 

I am, as you well know, uber-bullish on crypto. That bullishness is keenly focused on a few primary cryptocurrencies, most notably bitcoin. I am convinced that bitcoin is going to play a significant role in repairing the monetary imbalances that plague the Western world. 

I am convinced the bitcoin is very much a form of lifestyle insurance in its role as digital gold. 

And I know that bitcoin has an exceedingly limited number of coins (only 21 million will ever exist) and that mass adoption of crypto as a vehicle for saving, spending, and investing is going to see the granddaddy of cryptocurrencies shoot the moon.  

Lots of naysayers laugh and guffaw, but I am not the only one who charts a legitimate path to a six- and seven-figure price tag on bitcoin before this decade is out. 

Even if I was alone in this belief, it would be all fine by me.  

I have never been one to seek validation from anyone, particularly not from people who pan an asset they don’t understand and who cannot recognize the financial risks that are baked into Western currencies these days.  

He who laughs last, laughs loudest, as they say…and I will soon be warming up my vocal chords for a laugh you will no doubt hear coming all the way from Europe. 

There are two factors at play that explain why I’ve jumped into Grayscale Bitcoin Trust: 

1. The Federal Reserve is soon to conclude its rate hikes. 

The broader financial markets have already begun anticipating this, which is why the dollar has been having a horrible go of it lately, down more than 11% since peaking last fall. 

Conversely, since bottoming last fall, bitcoin is up 36% while #2 crypto Ethereum is up more than 47% since the end of December. Both of those tend to move on Fed expectations. If the Fed is raising rates sharply, as it did last year, those two cryptos dive. When expectations shift to a more dovish Fed, those two cryptos rise.  

2. The SEC 

I have no idea when the SEC will finally agree to allow an ETF that tracks the spot price of bitcoin. Right now, the only bitcoin ETF is a far-riskier version that tracks bitcoin on the futures market.  

Grayscale has sued the SEC to allow it to convert its trust to an ETF. When the day comes (if it comes) and the SEC allows the ETF conversion, the share price of the trust will instantly—and I do mean instantly—reflect the underlying value of the bitcoin it holds. Investors will immediately gobble up shares of the trust to capture the underlying and mispriced value of all that bitcoin.  

Assuming that were to happen right now, we’re talking about a share price that pops up immediately to about $20.99 from $12.28—a very nice 71% surge. 

Don’t take this as a recommendation. I’m simply telling you what I’m doing in my own investment life. And certainly, a conversion is not in the cards immediately. It could be months, maybe a few more years before this happens.  

But then, no worries—I’ve got time. I’m in no rush.  

I’d just as soon have that disconnect remain in place so that I can add to my position when I start putting some IRA money to work this tax season. 

And what if the SEC never agrees to this? 

Grayscale has said it will find a way to unlock the value. 

In the meantime, this, to me, is a nice way to own direct exposure to bitcoin at a very deep discount. My granny would be proud of that.