Hedge Fund Bullish on Bitcoin [BTC] with Ulterior ‘Premium’ Motives: Analysts



Three Arrows Capital becomes the leading holder of the GBTC fund with 6.26 share. Analysts who attempt to gauge the strategy at play see this is as a ‘premium play.’ Nevertheless, essentially the hedge fund is bullish on Bitcoin.

The GBTC share under Three Arrows Capital is nearly $259 million. The hedge fund is Bullish on Bitcoin has chosen to play at the big table. However, there are certain risks involved as well.

According to CMS Holdings and SBF Alameda, crypto derivatives experts and entrepreneurs the investment in GBTC is motivated to earn higher premiums over Bitcoin loans. According to one possibility,

Decide that the borrow rates for undercollateralized BTC are < (less than) GBTC premium, borrow, create, wait a year, sell and close down the borrow.

What is a Premium Play?

Grayscale’s Bitcoin Fund calculates the price of each share based on the NAV (Net Asset Value) and the premium based on demand and supply. Hence, during extreme bull runs, the premiums cause the share price to run away higher than the actual market price.

Furthermore, the shares under GBTC are locked for 6 months, earlier it was locked for 12 months. It was before Grayscale became an SEC reporting company in January 2019. In January after the end to 2019, Nic Carter, crypto analyst and founder of Coinmetrics and Adaptive Capital, predicted that the premiums will get crushed by the time the lock-in periods end. He tweeted,

I’d be willing to bet that the GBTC premium will be crushed to single digits on the week of July 15 2020 and October 21 2020

gbtc premium indicator
BTC/USD Daily Chart with GBTC Premium Indicator (Source: TradingView) 

The premiums were quite low in the last weeks following the COVID-19 cars as well. This might have motivated Three Arrows to accumulate GBTC to earn premiums later. However, a drop in Bitcoin [BTC] price is another huge threat to the collapse of the holdings’ price, and premium as well

Nevertheless, there are risks involved to it well, apart from a bear market. Gabor Gurbacs, Director, Digital Assets Strategy at VanEck/MVIS noted,

Premiums might also be crushed by a product that offers daily/more frequent liquidity and similar or higher regulatory status…

Approval of the Bitcoin ETF by the SEC could essentially erase the premium on GBTC altogether as competition between sellers and the removal of the time period for lock-in. Nevertheless, due to the SEC’s strict view on Bitcoin ETFs earlier this year, an approval in the near future is unlikely.

Do you think that the Bitcoin ETF will be approved any soon? Please share your views with us.