Bitcoin Rallies During Q3, Finishing Out Of The Limelight. GBTC Continues To Struggle
Summary
- Who would've thought Treasuries and some fiat currencies would be just about as volatile as Bitcoin? That's about what we saw in to wrap up Q3.
- The Grayscale Bitcoin Trust has fallen off many folks' radars as it continues to grow cheaper versus its net asset value.
- Favorable seasonal trends suggest a long position in crypto could make sense, but investors should avoid GBTC's questionable future.
Tevarak
Nobody seems to be talking about Bitcoin (BTC-USD) anymore. The biggest cryptocurrency has not moved much in the last three months after a wild first half of 2022. Remarkably, long-dated Treasuries were just about as volatile as Bitcoin during the latter half of September as the market grappled with intense uncertainty about what central bankers around the world will do next. Perhaps the latest hot coin is the 30-year UK Gilt!
But seriously, since the middle of June, Bitcoin’s price range is roughly $17,000 to $25,000. Since September 14, though, BTCUSD has a low near $18,200 with a high of around $20,400. For comparison, the iShares 20+ Year Treasury ETF (TLT) has about a 7% range over that period.
Bitcoin Hovers Above Its June Low
TradingView
Long-Term Treasury Bonds Plummet As Rates Rise
Stockcharts.com
And would you believe that the world’s most important cryptocurrency outperformed global stocks and the U.S. bond market during the third quarter? Bloomberg data show that BTC-USD was up fractionally, almost matching the U.S. Dollar Spot index’s 6% third-quarter advance.
Bitcoin Beats Stocks & Bonds In Q3
Bloomberg
Is now a good time to load up on Bitcoin? If so, what’s a good way to play it? According to CoinDesk, Bitcoin has historically increased in value in eight out of the past 12 Octobers, with an average gain of 12%. Moreover, huge gains have historically been seen starting in the middle of the month through mid-December, according to seasonal data by Equity Clock. While any good technician will tell you that seasonality takes a backseat to price action, it is something to keep in mind right now.
Bullish Seasonal Trends Ensue Later This Month
Equity Clock
Pricewise, I think being long here with a stop under the June low of $17,600 makes sense. But another way to play it to reduce the chance of another leg lower in the bear market stopping you out is to wait for a breakout above the August high of $25,200. Buying after a few days above that price level would take advantage of a possible bullish reversal.
I see resistance, though, in the low-$33k area. So, taking profits there could be a prudent move. After all, the broader trend off the $69,000 peak almost a year ago remains in place.
BTCUSD Consolidates Amid Low Volatility
Stockcharts,com
A popular (or now infamous) way to play Bitcoin is through the Grayscale Bitcoin Trust (OTC:GBTC). The $12.4 billion AUM product is down a whopping 65% over the last year whereas spot Bitcoin is lower by just 53%.
GBTC is not a cheap way to get exposure to Bitcoin, though. The trust’s annual fee is 2%, but according to Grayscale, it is solely and passively invested in BTC, enabling investors to gain exposure to BTC in the form of a security while avoiding the challenges of buying, storing, and safekeeping BTC, directly. Another option is the ProShares Bitcoin Strategy trust (BITO).
Enticing risk-seeking investors to GBTC is undoubtedly a massive discount to its net asset value ("NAV"). As of the end of September, the trust’s market price per share was $11.41 while the per-share value of its holdings was $17.88. That more than 36% discount to NAV is the widest in GBTC’s history, according to data from YCharts. During Bitcoin’s heydays and the bull market of 2018 through much of 2020, GBTC traded at a significant premium to NAV.
GBTC's Discount Grows Wider: Value Trap?
YCharts
Recently, though, Grayscale announced that it would buy back up to $250 million worth of GBTC shares to fight the trend of a bigger and bigger discount. Another way the spread could collapse is if GBTC gets converted to an actual exchange-traded fund (ETF), but there are no definitive signs that is indeed on the horizon.
The Bottom Line
I think Bitcoin is interesting here with bullish seasonal trends in the offing and a possible basing pattern. Going long here with a stop under the June lows could work or waiting for a breakout above $25k or so might be a good play.
I would caution against playing Bitcoin trends through GBTC, though. The trust continues to trade with a bigger and bigger discount to NAV, and my fear is that it is a broken product. Go with owning Bitcoin through an exchange or with a large, reputable company to hold your tokens.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.