These Traders Paid a 100% Premium for Bitcoin at the Market Top
(Bloomberg) -- Losing money as everything from stocks to oil and corporate bonds tumble? It could be worse.
To see what may be one of the most poorly timed trades of the past year, take a look at the $1 billion Grayscale Bitcoin Investment Trust. On Dec. 18, the day before Bitcoin’s epic crash began, buyers propelled the trust’s premium over net asset value to more than 100 percent. In rough terms, it was like shelling out $40,000 for a Bitcoin that was trading near $20,000 on spot markets.
The markup was largely a result of scarcity value. Buying the trust was one of the few ways for regulated U.S. institutional investors to gain exposure to cryptocurrencies, and some were willing to pay for the privilege on expectations that crypto-mania was just getting started.
Of course, we now know it hasn’t turned out that way. As Bitcoin tumbles toward $4,000 and the Grayscale trust’s premium shrinks, the bullish Dec. 18 bets are looking worse by the day. While it’s unclear how long buyers held on to their positions, anyone who stuck with the trade would be nursing losses of more than 87 percent.
One warning to bargain hunters: Even after its tumble, the Bitcoin trust isn’t exactly cheap. Its premium to net assets is still more than 9 percent.
©2018 Bloomberg L.P.