web version:
http://www.bitcoinfuturesguide.com/bitcoin-blog/wall-street-journal-gets-it-wrong-claims-bitcoin-investment-trust-gbtc-responsible-for-recent-rally
The Wall Street Journal came out with speculation today: [Suspicious link removed]j.com/articles/bitcoin-fund-may-have-contributed-to-currencys-rally-1449460380 [/url] that it was Barry Silbert's Bitcoin Investment Trust -- GBTC shares -- responsible for the bitcoin pump last month:
ON OCT. 21, FOR THE FIRST TIME SINCE THE FUND’S MAY LAUNCH ON THE OVER-THE-COUNTER MARKETPLACE OTCQX, THE SPREAD BETWEEN THE PUBLICLY TRADED SHARES OF THE FUND AND THE PRICE OF BITCOIN BECAME ALMOST NEGLIGIBLE, WITH THE FUND CLOSING AT A 1.9% PREMIUM.
VOLUME EXPLODED. ON NOV. 3, MORE THAN 71,000 SHARES VALUED AT ABOUT $3.5 MILLION CHANGED HANDS—20 TIMES THE AVERAGE. THE PRICE OF BITCOIN, MEANWHILE, SURGED 53% BETWEEN OCT. 21 AND NOV. 4, AND VOLUME ON MANY BITCOIN EXCHANGES TOOK OFF.
Okay so the first piece of evidence they introduce is a correlation between the price moving and higher volumes on these GBTC shares, including a tighter spread.
Then they get a quote from the owner of Grayscale, who sponsored the GBTC fund, and he followed it with a nonsequitor, or a really strangely uninformed non-point:
MICHAEL SONNENSHEIN, SPOKESMAN FOR DIGITAL CURRENCY GROUP, OWNER OF THE $44 MILLION TRUST’S SPONSOR, GRAYSCALE, SAYS THE NARROWED SPREAD LIKELY ATTRACTED MORE INVESTORS TO THE FUND.
WHEN TRADING ETFS, ARBITRAGERS OFTEN TRY TO PROFIT FROM CHANGES IN THE SPREAD BETWEEN THE UNDERLYING ASSETS AND THE FUND’S PUBLICLY QUOTED PRICE. TO DO SO, THEY MUST TAKE A POSITION IN THE ASSET ITSELF—IN THIS CASE BITCOIN. THE INCREASED ACTIVITY ON THE OTCQX-TRADED FUND MAY HAVE TRIGGERED A WAVE OF BITCOIN BUYING, CONTRIBUTING TO THE PRICE SPIKE.
This is really bizarre for the author to take Sonnenshein's quote and then make this inane point about arbitrage in ETFs. Yes, lower spreads on GBTC do make it more attractive for investors to buy if they want bitcoin exposure. When the Bitcoin spot market has coins for sale at $300 and GBTC goes from being $330 to $305, you're more likely to use that as a vehicle to buy bitcoin, that's basically all Sonnenshein is saying.
Considering that you must have owned BIT shares for 1 year before they could be converted to GBTC -- and there's no arbitrage mechanism for those who do buy through there. GBTC has no "settlement" to lock in a price for and their 2% fee makes it really an unattractive vehicle for doing so anyway.
The next quote comes from an analyst:
“THE ADDITIONAL LIQUIDITY AND EASIER ACCESS TO INVESTORS IS HELPING CREATE A MORE FLUID MARKET FOR BITCOIN,” SAYS WEDBUSH SECURITIES ANALYSTGIL LURIA.
This is a broad, vague statement. Okay, more liquidity means more access to investors who create a more "fluid market". That's broad enough that I don't really have a bone to pick there. Liquidity is up, volume (in some areas) is up. I would not contest that bitcoin market is "more fluid" at this point.
But there's no justification for the author to make such a strong claim based merely on a chart showing a correlation between GBTC volume/price with the bitcoin spot price, and then take two quotes and falsely paint them to be supporting his hypothesis about arbitrage being the cause.
If you buy and sell GBTC, it takes time for it to settle, because unlike other legacy markets, bitcoin still doesn't have the exchanges and liquidity to support that in the current banking system.
This was a surprisingly bad article from the normally good WSJ (on matters of fact and news at least). The only two "expert" opinions don't really support his claim, and the market evidence falls short too.
It was more like an "article stub" than a full article, so maybe there should not be too much made of it, and maybe we should just be glad that Bitcoin is in the press. It's just typical that Wall Street thinks that their little foray into Bitcoin is responsible for any movements, when they don't really realize what is truly driving things in the background -- i.e., the importance of China.
