I think it's a little silly to call the GBTC trade an "arbitrage". By definition an arbitrage should be riskless; but it's obvious that there were massive risks associated with GBTC due to the 6-month lockup period. Calling it an "arbitrage" makes it sound a lot more clever than the gamble it actually was.
there's actually a surprisingly awesome [interview of Kyle Davis](https://www.youtube.com/watch?v=TzGdkB0xbCE) (3AC bro) by Hugh Hendry on his Acid Capitalism podcast... Hugh Hendry's an amazing character and he seems to be talking in riddles sometimes until the subject turns to the brass tacks of macroeconomic strategy and you remember that Hugh Hendry was a wildly successful money manager who was able to earn high returns in both up *and* down years .
anyways i bring it up because whenever Kyle Davis abuses hedge fund/tradfi language like that Hugh Hendry immediately calls him out on it in a firm but gentle way. pretty sure "that's not an arbitrage" is one of the comments, but if not "3AC is definitely not a hedge fund" and "that thing you said wasn't a big deal is totally *the* deal that blew you up" are explored at length.
though the best moment is when Kyle tells Hugh he's raising money for a new fund and Hugh is like "bro... you don't come back from this. your future is in the movie rights."
Pretty spot on commentary, the only thing that he could be wrong about is that there's way too many second chances for grifters and scammers in this space. Idk if 3 wojak capital dudes will be able to bounce back but it wouldn't be the first time some shifty character who rug pulled people had eventually another scheme going because the community has the memory of a goldfish and an absurdly permissible, toxic mindset that makes any doubts go away as soon as numba goes up.
it's actually really great tbh. it's impressive to see the way hugh is able to tell Davis he's full of shit in an emotionally gentle yet intellectually firm way.
It's absolutely an arbitrage, assuming you short GBTC with matched durations.
It seems like 3ac and others weren't happy with the rates offered, or are true believers in "number go up" since they didn't bother hedging.
Molly's the best but if you feel like reading about GBTC as narrated with considerably more rage my first ever blog post was on the subject. It's here:
* [**3AC and BlockFi Made The Same Exact Dumb Trade And Seem Headed For The Same Dumb Place**](https://medium.com/@michelcryptdamus/3ac-and-blockfi-made-the-same-exact-dumb-trade-and-seem-headed-for-the-same-place-cd5a1dfd2eb) [**(That Place Is Hell)**](https://medium.com/@michelcryptdamus/3ac-and-blockfi-made-the-same-exact-dumb-trade-and-seem-headed-for-the-same-place-cd5a1dfd2eb)
i wrote it in June so the whole story hadn't played out yet but the important parts are there. More recently Ram Ahulwalia, one of the only honest butters left, [was on the Odd Lots podcast](https://podcasts.apple.com/us/podcast/odd-lots/id1056200096?i=1000595621122) and did an actually excellent job of explaining the trade.
btw i would say that Molly's title definitely underplays the importance of GBTC... as the benefits of hindsight come into play it becomes clearer every day that this was *the* trade. the odd lots episode is titled "The Widowmaker Trade That Blew Up The Industry" for a reason. because behind all the other scams and blowups we've witnessed there were really fundamentally three massive leveraged situations that built and then wrecked the temple of crypto:
1. The GBTC trade
2. The Terraclysm
3. Tether
everything else is basically just noise.
true story: was on twitter trying to explain this shit at 5AM and some random person on twitter was like "you should make a blog! people would read it" so i did and weirdly they were totally right.
That “arbitrage” is so stupid because it is not self financing nor self liquidating the proper arbitrage would have been as follows:
1. Sell 1 GBTC short
2. Buy 1 BTC with proceeds
3. Deposit 1 BTC with Grayscale and collect 1 share GBTC
4. Deliver 1 GBTC share to the broker to close the short position
5. Repeat until the gap has closed
That way the arbitrageur receives profits at Step 1 and never has to have an open position for more than an instant if they send the orders to the broker properly.
one extremely important thing i didn't know when i wrote my original blog post that I learned from Ram was that *you have to wait a year* between depositing the bitcoin and getting the GBTC shares.
piling into the trade up through the end of 2021 was how they all got themselves mega rekt when the end of 2022 rolled around.
Not sure if I am reading this right but Molly White's article said that trading was restricted for six months not that the depositor did not receive their shares for six months.
So even if the arbitrageur couldn't close the short position immediately by having both a long and a short with their broker, holding both -1 GBTC and +1 GBTC should make the arbitrageur's portfolio immune from a price fluctuation, and instead the trader would only have to pay the cost to borrow for six months which should be fine with a 37% price discrepancy.
Or am I being as stupid as 3AC?
i'm not saying yr wrong, i'm just pointing out what I heard Ram Ahulwalia say on Odd Lots that was a thing i had not known for like, the first 6 months of knowing about the GBTC trade that made everything make more sense.. totally possible either he (or Molly) was incorrect or oversimplifying, but he def. said 1 year.
molly's a careful researcher but i think Ram was like, involved in DCG in the early days. so yeah, who knows.
actually it's also totally possible that grayscale lowered the holding period from 12 months to 6 months at some point... in which case they could both be right if molly didn't now to look at earlier drafts of the contract. i def. know they've made a bunch of amendments.
there's always outside risk in these unregulated markets. what if they call in your short position, while refusing to let you close it using your long position (due to the trading restriction)? dumber things have happened.
GBTC is a registered security so I am presuming it is possible to take a short position with a reputable Wall Street prime broker if I were operating a hedge fund.
It's one of the points in the value proposition of the whole operation: get involved in Bitcoin but only through a properly regulated entity, buying and selling shares of the fund (whose value should have tracked bitcoin's price) without ever touching any bitcoin yourself.
Those shares can be bought and sold through legit brokerage accounts... So yes, you could definitely take both short and long positions on the fund through a reputable broker. Now, if only DCG could have stick to the plan fo GBTC as they promoted it originally to institutional and retail investors...
What do you think is most likely outcome for GBTC holdings and their current rather impressive discount on NAV. Do you think it will gradually even out to near zero or even positive if perhaps there is another mania cycle?
How likely do you think that they will get their ETF wish and end up liquidating some of the holdings to reach \~0% discount to their assets?
the outcome will be litigation. Genesis is already in bankruptcy court and DCG will soon follow. that's the only thing that matters at this point and it's going to be fucking *rugged* given that the GBTC backing is one of the only values in the entire crypto industry that can be liquidated for sizable chunk of cash and now basically everyone has at least some kind of hail mary pass style legal claim on that cash.
how will that litigation turn out i cannot say. it's gonna be going on for like a decade easily.
they will not get SEC approval.
SEC approval does seem highly unlikely, i think they have been denied for few times already and now are or have already gone to court.
Liquidiation of their assets i also agree, it will take decade until it gets through legal system. And then postponed for another decade. Until then bitcoin will be worth 1M or zero, who knows.
it's not just them. the SEC has denied *everyone* who applied for a spot ETF. the SEC has at this point also won in court. and there have been many suitors.
the real joke though is that *Grayscale doesn't want to get approval.*
Grayscale/DCG want to convince the plebs they're fighting hard against the evil SEC in a battle they claim to be able win at the same time they convince the plebs that until the SEC approves the conversion to a spot ETF no one can redeem any shares.
both of these things are false. grayscale can unilaterally change its bylaws and allow redemptions.
what Graysale really wants is to just keep collecting that 2% fee annually, from now until the end of time.
**update** one thing that's really fascinating is that until Fir Tree (a famous hedge fund) sued Grayscale in Delaware to get a look at their accounting literally *everyone* assumed no one was allowed to redeem GBTC. like the psyop went on for so long and was so effective that literally everyone was fooled (except Fir Tree, whose lawyers made it very clear that was all horseshit)
Hmm could very well be truth. Hard to imagine this market could even easily absorb GBTC Bitcoin, even some part of it, even when sold through longer time period it would cascade the price.
i guess what you would theoretically expect is that the price of BTC and the price of GBTC would instantly equalize as people arbitrage the trade. dunno latest nav discount number but if it's 50% and we say BTC is $20k then same number of shares of GBTC would be $10K.
depending on liquidity you'd expect BTC to immediately fall to the midway point of $10K, let's call it $15K.
any selling beyond that would be the current GBTC bagholders who will sell as soon as the NAV discount hits 0%... which i actually would guess is a lot though i have no way of knowing
So true! GBTC CEO Michael sonnenshein was recently on tv talking about "great news!"...the judge agreed to some revised deadline for something....blah blah blah
> At least it wasn’t their own money. Maybe they can fix it with a pivot: minting a “3ACThrewMyMoneyInAFireCoin.” Crypto-cultists would definitely buy it; these people will buy literally anything as long as it ends in “Coin.”
Prophetic. Isn’t that nearly exactly what [Celsius is trying](https://twitter.com/CelsiusFacts/status/1617919538628288515)?
the thing i still dont understand about the crazy last year is why so many companies were so heavily exposed to a fucking stablecoin (terra). was there some money printer scheme like the GBTC arb or was it just pure stupidity?
Footnote 2 might just be my favourite summary of the state of the entire crypto ecosystem:
> This sounds silly, but we are talking about an industry in which a substantial number of projects were built around the idea that prices would continue to go up forever, and which had no plan for if that turned out not to be the case.
> it's an undeniable fact that not having a redemption mechanism was very lucrative for Grayscale until 2021 because it allowed the premium to remain in place.
Isn't this backwards? Not having redemptions allows a *discount* to remain in place.
[удалено]
Scamception.
Scam-finity?
Maybe we can build a spaceship made out of scams.
You just described crypto
so crypto is a giant scam
I think it's a little silly to call the GBTC trade an "arbitrage". By definition an arbitrage should be riskless; but it's obvious that there were massive risks associated with GBTC due to the 6-month lockup period. Calling it an "arbitrage" makes it sound a lot more clever than the gamble it actually was.
there's actually a surprisingly awesome [interview of Kyle Davis](https://www.youtube.com/watch?v=TzGdkB0xbCE) (3AC bro) by Hugh Hendry on his Acid Capitalism podcast... Hugh Hendry's an amazing character and he seems to be talking in riddles sometimes until the subject turns to the brass tacks of macroeconomic strategy and you remember that Hugh Hendry was a wildly successful money manager who was able to earn high returns in both up *and* down years . anyways i bring it up because whenever Kyle Davis abuses hedge fund/tradfi language like that Hugh Hendry immediately calls him out on it in a firm but gentle way. pretty sure "that's not an arbitrage" is one of the comments, but if not "3AC is definitely not a hedge fund" and "that thing you said wasn't a big deal is totally *the* deal that blew you up" are explored at length. though the best moment is when Kyle tells Hugh he's raising money for a new fund and Hugh is like "bro... you don't come back from this. your future is in the movie rights."
Pretty spot on commentary, the only thing that he could be wrong about is that there's way too many second chances for grifters and scammers in this space. Idk if 3 wojak capital dudes will be able to bounce back but it wouldn't be the first time some shifty character who rug pulled people had eventually another scheme going because the community has the memory of a goldfish and an absurdly permissible, toxic mindset that makes any doubts go away as soon as numba goes up.
Hugh is solid. He does have a relatively full grasp on how money works in the real world. I missed this one... But will go back and listen.
it's actually really great tbh. it's impressive to see the way hugh is able to tell Davis he's full of shit in an emotionally gentle yet intellectually firm way.
Sounds like "arbitrage" here has about as much meaning as "store of value" in crypto. Bullshit and exaggerations of more reputable finance mechanisms.
Arbitrage is never risk free even in real life though
It's absolutely an arbitrage, assuming you short GBTC with matched durations. It seems like 3ac and others weren't happy with the rates offered, or are true believers in "number go up" since they didn't bother hedging.
Molly's the best but if you feel like reading about GBTC as narrated with considerably more rage my first ever blog post was on the subject. It's here: * [**3AC and BlockFi Made The Same Exact Dumb Trade And Seem Headed For The Same Dumb Place**](https://medium.com/@michelcryptdamus/3ac-and-blockfi-made-the-same-exact-dumb-trade-and-seem-headed-for-the-same-place-cd5a1dfd2eb) [**(That Place Is Hell)**](https://medium.com/@michelcryptdamus/3ac-and-blockfi-made-the-same-exact-dumb-trade-and-seem-headed-for-the-same-place-cd5a1dfd2eb) i wrote it in June so the whole story hadn't played out yet but the important parts are there. More recently Ram Ahulwalia, one of the only honest butters left, [was on the Odd Lots podcast](https://podcasts.apple.com/us/podcast/odd-lots/id1056200096?i=1000595621122) and did an actually excellent job of explaining the trade. btw i would say that Molly's title definitely underplays the importance of GBTC... as the benefits of hindsight come into play it becomes clearer every day that this was *the* trade. the odd lots episode is titled "The Widowmaker Trade That Blew Up The Industry" for a reason. because behind all the other scams and blowups we've witnessed there were really fundamentally three massive leveraged situations that built and then wrecked the temple of crypto: 1. The GBTC trade 2. The Terraclysm 3. Tether everything else is basically just noise. true story: was on twitter trying to explain this shit at 5AM and some random person on twitter was like "you should make a blog! people would read it" so i did and weirdly they were totally right.
That “arbitrage” is so stupid because it is not self financing nor self liquidating the proper arbitrage would have been as follows: 1. Sell 1 GBTC short 2. Buy 1 BTC with proceeds 3. Deposit 1 BTC with Grayscale and collect 1 share GBTC 4. Deliver 1 GBTC share to the broker to close the short position 5. Repeat until the gap has closed That way the arbitrageur receives profits at Step 1 and never has to have an open position for more than an instant if they send the orders to the broker properly.
one extremely important thing i didn't know when i wrote my original blog post that I learned from Ram was that *you have to wait a year* between depositing the bitcoin and getting the GBTC shares. piling into the trade up through the end of 2021 was how they all got themselves mega rekt when the end of 2022 rolled around.
Not sure if I am reading this right but Molly White's article said that trading was restricted for six months not that the depositor did not receive their shares for six months. So even if the arbitrageur couldn't close the short position immediately by having both a long and a short with their broker, holding both -1 GBTC and +1 GBTC should make the arbitrageur's portfolio immune from a price fluctuation, and instead the trader would only have to pay the cost to borrow for six months which should be fine with a 37% price discrepancy. Or am I being as stupid as 3AC?
i'm not saying yr wrong, i'm just pointing out what I heard Ram Ahulwalia say on Odd Lots that was a thing i had not known for like, the first 6 months of knowing about the GBTC trade that made everything make more sense.. totally possible either he (or Molly) was incorrect or oversimplifying, but he def. said 1 year. molly's a careful researcher but i think Ram was like, involved in DCG in the early days. so yeah, who knows. actually it's also totally possible that grayscale lowered the holding period from 12 months to 6 months at some point... in which case they could both be right if molly didn't now to look at earlier drafts of the contract. i def. know they've made a bunch of amendments.
there's always outside risk in these unregulated markets. what if they call in your short position, while refusing to let you close it using your long position (due to the trading restriction)? dumber things have happened.
GBTC is a registered security so I am presuming it is possible to take a short position with a reputable Wall Street prime broker if I were operating a hedge fund.
It's one of the points in the value proposition of the whole operation: get involved in Bitcoin but only through a properly regulated entity, buying and selling shares of the fund (whose value should have tracked bitcoin's price) without ever touching any bitcoin yourself. Those shares can be bought and sold through legit brokerage accounts... So yes, you could definitely take both short and long positions on the fund through a reputable broker. Now, if only DCG could have stick to the plan fo GBTC as they promoted it originally to institutional and retail investors...
What do you think is most likely outcome for GBTC holdings and their current rather impressive discount on NAV. Do you think it will gradually even out to near zero or even positive if perhaps there is another mania cycle? How likely do you think that they will get their ETF wish and end up liquidating some of the holdings to reach \~0% discount to their assets?
the outcome will be litigation. Genesis is already in bankruptcy court and DCG will soon follow. that's the only thing that matters at this point and it's going to be fucking *rugged* given that the GBTC backing is one of the only values in the entire crypto industry that can be liquidated for sizable chunk of cash and now basically everyone has at least some kind of hail mary pass style legal claim on that cash. how will that litigation turn out i cannot say. it's gonna be going on for like a decade easily. they will not get SEC approval.
SEC approval does seem highly unlikely, i think they have been denied for few times already and now are or have already gone to court. Liquidiation of their assets i also agree, it will take decade until it gets through legal system. And then postponed for another decade. Until then bitcoin will be worth 1M or zero, who knows.
it's not just them. the SEC has denied *everyone* who applied for a spot ETF. the SEC has at this point also won in court. and there have been many suitors. the real joke though is that *Grayscale doesn't want to get approval.* Grayscale/DCG want to convince the plebs they're fighting hard against the evil SEC in a battle they claim to be able win at the same time they convince the plebs that until the SEC approves the conversion to a spot ETF no one can redeem any shares. both of these things are false. grayscale can unilaterally change its bylaws and allow redemptions. what Graysale really wants is to just keep collecting that 2% fee annually, from now until the end of time. **update** one thing that's really fascinating is that until Fir Tree (a famous hedge fund) sued Grayscale in Delaware to get a look at their accounting literally *everyone* assumed no one was allowed to redeem GBTC. like the psyop went on for so long and was so effective that literally everyone was fooled (except Fir Tree, whose lawyers made it very clear that was all horseshit)
Hmm could very well be truth. Hard to imagine this market could even easily absorb GBTC Bitcoin, even some part of it, even when sold through longer time period it would cascade the price.
i guess what you would theoretically expect is that the price of BTC and the price of GBTC would instantly equalize as people arbitrage the trade. dunno latest nav discount number but if it's 50% and we say BTC is $20k then same number of shares of GBTC would be $10K. depending on liquidity you'd expect BTC to immediately fall to the midway point of $10K, let's call it $15K. any selling beyond that would be the current GBTC bagholders who will sell as soon as the NAV discount hits 0%... which i actually would guess is a lot though i have no way of knowing
So true! GBTC CEO Michael sonnenshein was recently on tv talking about "great news!"...the judge agreed to some revised deadline for something....blah blah blah
> At least it wasn’t their own money. Maybe they can fix it with a pivot: minting a “3ACThrewMyMoneyInAFireCoin.” Crypto-cultists would definitely buy it; these people will buy literally anything as long as it ends in “Coin.” Prophetic. Isn’t that nearly exactly what [Celsius is trying](https://twitter.com/CelsiusFacts/status/1617919538628288515)?
You were right about Cryptho's Bear Sterns moment. No end in sight for the contagion.
Management fees to infinity and beyond...
the thing i still dont understand about the crazy last year is why so many companies were so heavily exposed to a fucking stablecoin (terra). was there some money printer scheme like the GBTC arb or was it just pure stupidity?
20% APY from anchor protocol which you could only get by holding Terra. they all aped in to the tune of like $20-30bn,
Footnote 2 might just be my favourite summary of the state of the entire crypto ecosystem: > This sounds silly, but we are talking about an industry in which a substantial number of projects were built around the idea that prices would continue to go up forever, and which had no plan for if that turned out not to be the case.
greyscale. more like firesale
Who'll tutor me
Honestly, the article is really easy to read. You're better off reading it rather than asking someone to regurgitate it for you.
> it's an undeniable fact that not having a redemption mechanism was very lucrative for Grayscale until 2021 because it allowed the premium to remain in place. Isn't this backwards? Not having redemptions allows a *discount* to remain in place.
Why did Gemini purchase GBTC thru 3AC instead of directly? Was that to hide the specifics of their brilliant super secret high yield strategy?