GBTC (Grayscale Bitcoin trust) is the only form of pure exposure to Bitcoin for stock trading accounts. The biggest problem GBTC had in its inception and during the bull market of 2016 - 2017 was how many Bitcoins were held in the trust in relation to its stock price. At the height of the crypto rally in 2017, GBTC was trading in the vicinity of a 100%+ premium to Bitcoin. That means buying $10,000 worth of GBTC really only meant owning the equivalent of .5 Bitcoin. Eventually the premium dwindled down to about 20%, which makes sense since traditional trading and retirement accounts (IRAs) now have access to BTC performance. In June 2019, Grayscale came out with ETHE (chart above), the GBTC equivalent for Ethereum. At one point I believe it was trading at a staggering ~400% premium to Ethereum (June 2020). We are seeing something VERY similar happening with ETHE. The KEY THING here is the ETH holdings per share (you could see that below).
GBTC closed on Friday at $13.58 per share, while the holdings per share closed at $11.25: Market Price per Share* At close as of 08/21/2020 $13.58 DAY CHANGE -4.10%
Bitcoin Holdings per Share** At close as of 08/21/2020 $11.25 DAY CHANGE -0.18%
At some point ETHE is likely to trade at a small premium to Ethereum (probably similar to GBTC, which is about 20%).
I think we are getting very close to that point. I expect the premium to erode to something reasonable, somewhere between $35 - $42 per share.
This is the zone where I would get a buy signal. Right now it's nearly double that.
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A little bit more than a week has passed and the price of ETHE has gone down 17% while the price of Ethereum has gone UP about 15-20% in the SAME PERIOD. This is actually good news for people interested in the product, not bad news. We are getting a tighter premium which is what makes the product desirable.
At a current price of 55.75 and updated ETH holdings of $40.10, we're looking at a 39% premium vs the 79% just 9 days ago. Already a significant improvement.
I am stilling looking for that $40 price range to hit in ETHE and no more than a 20-25% premium (As I've stated before I think a 20% premium is justified given the fact that it's the ONLY way to get exposure to Ether in the form of public equity (stock)).
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Time to watch more closely as ETHE is now in the 40 handle and getting closer to target:
Current holdings per share still stand at a very high 53% premium based on below... PATIENCE: Market Price per Share* At close as of 09/08/2020 $49.25 DAY CHANGE -11.58% ETH Holdings per Share** At close as of 09/08/2020 $31.97 DAY CHANGE -11.24%
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Tagged 43 this morning and bounced. Currently at about a 28% premium to Eth which I believe is the lowest it's been since I started following the stock. Has some squeeze potential now: If there was ever a time to consider going long, now could be a decent time to buy some.
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It's time:
IMO price will either rip shortly or flush down as a false continuation and reverse. Just keep one thing in mind. This is a super high risk stock not because of ether itself, but because of the diverging performance lately. Timing is everything is an understatement with a garbage product like this, because you're battling the product itself rather than just the underlying asset. It's hard enough to be right on the asset let alone the product that trades based on the asset. But we're in the buy zone now.
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We had the flush down as a potential false continuation as I suspected could happen:
I think there is a very reasonable probability ETHE bottoms around now
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Huge reversal off my blue level. Did anyone catch this? :)
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above 70 takes us to 78 then 89:
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Closed on Friday at my first target. Now looking for the next level. I'm still long a full position:
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Next target was hit:
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Retested 200 day and structure. Adjusted trailing stop below today's low. I still have a full position in the IRA:
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Back to new highs. Here's how I am monitoring it for profit taking. As long as price stays above these moving averages the stop should not be triggered:
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3X from entry:
Trade closed: target reached
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Closing @ 175. Monster.
Holding spot ETH
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Deja vu round 2 ... now with Litecoin.. Much lower liquidity on this Grayscale product but can 4-5x. Should always hold the real thing but if you want to trade something in an IRA account.. this could be interesting here. High risk/high reward. Targeting mid 90s per share
Great Write up! I had just run the numbers to see where we were as far as the "premium" it cost to buy ETHE. I agree with you that up to a 20% premium is the level of reasonable, because so many people will be panicked to get in during a bull run. But I agree that the risk is too elevated when the premium is over 30% because if ETH drops, ETHE will drop even more dramatically. There are so many reasons that people would prefer to trade ETHE. Their money is already in that brokerage account, all the taxes are done, trading cryptos are not allowed in various legal entities... the list goes on.
I like that you are sharing this.
In fact, the premium was almost 1,000% (10x) around June 11 I believe- $218. for ETHE which was worth only $23. of ETH.
I do suspect, that during a bull run, the premium will often shoot up to 40% as people pile in. This will make it harder to stay in the trade as the risk of loss will begin to escalate.
Good luck.
Lanmar
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@earthling, Agree with you 100% on all points. Thanks for your input!
HHSPN
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Your projections were so accurate. Request to chart ETHE post split, it looks like there is more juice left in the tank to new highs post spilt long term. In case you are playing GreyScale bitcoin GBTC and Cardano's ADA, please chart. TIA.
Harry_Seldon
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Thank you for this.
Does it say anything about standard ETH price in your opinion ?
= Does getting back to a reasonable premium on ETHE reveal something about the underlying price (being overvalued or something).
Lanmar
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@Harry_Seldon, np. I don't think it says anything about ETH itself. It could say something about how the market (equity investors/traders) currently price in exposure to ETH in the form of stock (for example, maybe it deserves a higher premium than GBTC? I don't know, perhaps it does)... But I think it has more to do with low levels of sophistication and the product itself simply being relatively new. Institutional investors are definitely not touching ETHE yet. So the majority of the holders is unsophisticated retail propping up the price to overvalued levels (that's just my guess). But to your question.. if it did reveal something about ETH, it would imply that ETH is actually perceived as undervalued. The premium for GBTC rises when BTC is about to breakout or has momentum, and it falls when the price of BTC has downside momentum.
And I failed to do the basic math before jumping on what looked like a dip. Now I am holding shares at a stupid premium and trying to average down to the point where I may see a positive return in the next year. I should have known better after trading GBTC for a few months...
Lanmar
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@WTFpattern, The same thing happened with GBTC in its early days. Very few people knew about the premium apparently (I didn't at the time), then an article came out and wiped 20% of its value instantly (I owned some back then). Some lessons are best learned through experience. You'll be looking for these risks in the future and it'll probably save you more money than you lost on the lesson
jokercvb
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what about ETHE vs ETCG? are there any benefits or drawbacks to each one?
Lanmar
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@jokercvb, ETCG trades at a better relative price to holdings ratio given its maturity as a Grayscale product (about one year older than ETHE). But I think ETC itself is the problem here for poor performance as opposed to Grayscale as a product. ETC is down about 90% against Eth since 2016. And down about 50% against eth since the start of 2020. It's the ugly sibling that can't win. You want to own the leader. So what I would do is wait for ETHE to stabalize.. And avoid ETCG in the meantime. Etcg is likely to break new lows. $4-5 per share wouldn't surprise me. Etcg also has a market cap of 80 mill. Ethe is 10x more than that with 800 mill. So ethe has a lot more potential as a financial product for the Grayscale pipeline. More liquidity is better
I like that you are sharing this.
In fact, the premium was almost 1,000% (10x) around June 11 I believe- $218. for ETHE which was worth only $23. of ETH.
I do suspect, that during a bull run, the premium will often shoot up to 40% as people pile in. This will make it harder to stay in the trade as the risk of loss will begin to escalate.
Good luck.