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Crypto Report
How to handle GBTC climax tops + ETHE premiums
Q:
In looking at the parabolic moves of volatile ETNs like GBTC, I noticed that in big moves they go up 400% and then drop 50%, then repeat a 400% move.

GBTC is coming up on a 4x gain (as of 1-6-21) since the recent parabolic move started at 10.  But, it now has a lot of institutional purchasers rather than retail purchasers (I assume) like GBTC in 2017-18 and JNUG in 2016-17.  I saw how Dr. K recommended handling GBTC as it reached an ATH. What do you think about the presence of institutional investors and the likelihood of GBTC repeating its 2017-18 pattern?

A:
Institutional investors are far more present now than ever before so the buying pressures on bitcoin and GBTC are heavy. GBTCs and ETHEs premiums can swing to extremes during such frothy periods which can last longer than anyone expects. 

That said, expect sharp drops as a result of profit taking or a negative news event at some point as bitcoin often loses around 1/3 of its value in bull markets, though the supply of bitcoin this time is so scarce, bitcoin may only correct 20-25% instead of 30-40% in this bull run. In 2017, such price action was sometimes as short as one day so trying to time selling then rebuying whether it’s bitcoin itself or the highly correlated alt coins can be tricky at best. It is often better to use such pullbacks as buying opportunities as well as identifiers of weaker names in your portfolio which you would then sell at least half of the position, moving the capital into the stronger names.

Hopefully we get yet another major climax top in GBTC, bitcoin itself, and the alt coins as such tops have so far been part of each bubble cycle, ie, near the end of 2013 and late 2017. So yes, the rhyme of a bursting bubble perhaps around the end of 2021 will be observed in GBTC, bitcoin, and the alt coins. This time prediction is based on bitcoin's S2F, bitcoin price history, and a number of other metrics I use.

Another point is that the lockup period in ETHE has been shortened to 6 months to equal that of GBTC which could reduce ETHE's large premium. This could account for the selling we saw on Monday despite the price rise in ethereum over the weekend. This is a red flag which should be monitored. While ETHE has outperformed ethereum in prior bull runs, you may want to eliminate this added volatility which can swing both ways due to these added layers of complexity regarding the premiums and lockup periods. You would then want to buy ethereum not through Grayscale but through a cryptocurrency exchange or through Paypal if you want to remove the counter party risk of trading on a cryptocurrency exchange.
First published: 6 Jan 2021
Last updated: 6 Jan 2021