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Famed short seller Andrew Left said that he believes the Bitcoin Investment Trust (OTC: GBTC) represents one of the easiest — and most profitable — short opportunities, regardless of what happens to the bitcoin price.
Trader Says to Short Bitcoin Investment Trust
Left, a trader at Citron Research, is “pounding the table” on the Bitcoin Investment Trust, arguing that the shares — which on Monday traded at an 81% premium over the value of the underlying assets — provide short sellers with the perfect opportunity to reap significant profits, even if they are bullish on bitcoin.
Citron would not be pounding table if not appropriate. Now with the launch of CME futures, BTC positions can be hedged for 10% premium of spot while $GBTC is trading at 80%. Who cares where bitcoin goes..thank you for the 70% profit. Shorting More $GBTC and buying futures pic.twitter.com/JPr7fN8mSY
— Citron Research (@CitronResearch) December 18, 2017
Citron has been attempting to short GBTC for some time now, but, as Barron’s reports, it has been getting burned due to the massive fourth-quarter bitcoin price rally.
That will change, Left said, now that bitcoin futures are available on regulated U.S. exchanges CME and CBOE. He said that traders can short GBTC and buy bitcoin futures — which trade at a premium of roughly 10 percent — to net a 70 percent profit if the premium on GBTC evaporates.
“There’s an incredibly naïve investor base behind this who doesn’t want to check the extra boxes off to open a futures account,” Left said during an interview with Bloomberg Television, adding that the excessive premium on GBTC “has to do with investors out there that do not know what they’re doing.”
Fundstrat Still Comfortable Recommending GBTC
However, Fundstrat founder Tom Lee said earlier this week that, even at this excessive premium, he is comfortable recommending GBTC because it is one of the few “equity proxies” available to prospective bitcoin investors who do not want to take on the risk of holding the asset themselves.
It’s important not to underestimate the psychological component of this fact. GBTC holds bitcoin, while the cash-settled futures are merely contracts based on the price of bitcoin at a given time.
But there may be another factor at play. Since GBTC holds bitcoin directly, it also gains access to airdropped cryptocurrencies created through hard forks of the bitcoin blockchain. While the fund sponsor has warned shareholders that they should not expect the trust to interact with every fork, the trust did obtain and auction off coins created through the bitcoin cash fork, netting investors a “dividend” of more than $100 per share.
Notably, GBTC is not the only stock in the blockchain ecosystem that Left has identified as a shorting opportunity. Citron is also shorting the stock for Riot Blockchain, a former biotech company whose stock price surged after rebranding itself as a blockchain investment firm.
Featured image from Shutterstock.