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Portfolio Update – A Rumor on Two Names

Deep Knowledge Investing originally recommended buying Bitcoin and the Grayscale Bitcoin Trust ($GBTC) in late 2020 when Bitcoin was around half the current price. In June, when Blackrock, Fidelity, and several other huge institutional firms filed for Bitcoin ETFs (Exchange Traded Funds), we bought more $GBTC and re-recommended the position.

 

Our thinking on that matter was that Blackrock and Fidelity were filing the ETF application because they thought it would be approved. We believe that if these firms succeeded in getting SEC approval for a Bitcoin spot ETF that the Grayscale application (currently in litigation) would also be approved. In that event, the Grayscale discount to net asset value (NAV) would collapse from 30% – 40% at the time to zero.

 

In addition, current Bitcoin issuance is around 900 coins a day. At current prices, that’s about $25 million of daily issuance. Blackrock has around $10 trillion under management. Even a 50bp (.5%) position would entail $50 billion of Bitcoin purchases from that firm alone. With a relatively fixed supply, and institutional demand coming, the only thing that can adjust is the price of Bitcoin.

 

As I write this, Bitcoin is up 5.5% on the day and GBTC is up 18%. The GBTC discount to NAV has come down to 17%. The reason for this is there’s a rumor that a court is going to rule in favor of Grayscale and against the SEC. The most logical move from the SEC is to approve the Grayscale ETF application as required by the Court, and also approve the Fidelity and Blackrock applications at the same time.

 

DKI intends to hold $GBTC until the discount to NAV collapses, then shift those holdings into Bitcoin and self-custody. For those of you not comfortable with self-custody of Bitcoin, please check out the DKI guide.

 

DKI premium subscribers have made 41% in GBTC in two months.

 

Update:  The rumor is true. I just received this email from Grayscale:

Today, the D.C. Circuit ruled in favor of Grayscale in our lawsuit challenging the SEC’s decision to deny the conversion of GBTC to an ETF. This is a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper.

At this time, the Grayscale team is reviewing the details outlined in the Court’s opinion and will share more information on next steps in the ETF conversion process as soon as practicable.

 

GB@DeepKnowledgeInvesting.com if you have any questions.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

 

In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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