Bitcoin Price Prediction: Grayscale Conversion and Other Catalysts to Watch

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What is the current situation with Bitcoin?

Bitcoin (BTC-USD) has been trading in a range for the past few months, but in the world of crypto, you’re never far from some excitement.

On the one hand, Miami Beach hosted the Bitcoin 2022 conference in April. With over 25,000 people attending in person, the conference was more than double last year – with a 1.5 tonne bull sculpture, a concert by Steve Aoki and people sale of timeshare yachts.

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Peter Thiel called Warren Buffett “sociopath grandfather from Omahaduring his speech, which surely gave financial news sites many clicks in the days that followed. Buffett, for his part, said he would not trade $25 for all the Bitcoin in the world at the Berkshire Annual Meeting this weekend.

But behind the conspiracy theories and the blunders, there is a fundamental promise, which is that each of the 7 billion people in the world can put their savings in a currency that is not controlled by a central bank, and cannot so not be bloated. Sure, Bitcoin can be taxed, but taxes get a lot of voters’ attention while printing money is easier and misunderstood, making printing the tactic of choice for governments looking to raise money. funds. There are issues with Bitcoin that need to be resolved at some point, the main example being ensure that miners do not waste tons of electricity, but there were slowly but steadily progress along these lines.

The most important thing happening with Bitcoin, in my opinion, actually has nothing to do with any of this. This is actually an obscure push by the Grayscale Bitcoin Trust (OTC:GBTC) to convert a closed-end fund into an ETF, giving ordinary investors a cheap and efficient way to own Bitcoin with just a few clicks. of mouse.

What is Bitcoin Grayscale Conversion?

Essentially, Grayscale is trying to get government permission to convert GBTC into an open-ended ETF. As of Friday’s close, GBTC had a net asset value of $35.46 per share, while the market price is only $26.38. This is a significant discount to the underlying assets, and the conversion would provide the legal mechanism for GBTC to arbitrate this, driving the market price up until it equals the value liquidation (more explanations here). Essentially, if you believe this case will resolve in GBTC’s favor within the next few months, you can realize a 34.4% ROI. Sounds high and it is, but remember crypto is much less efficient than the traditional sectors of the financial markets, so things like this happen all the time because the traditional players who do arbitrage are not allowed to touch it.

GBTC has therefore filed a request with the SEC to do this. The SEC didn’t say yes, but it didn’t say no either and asked for more time. They also asked the American public to write their thoughts, and about 2700 interested people wrote (you can read my letter for them here). In the meantime, there have been some interesting legal twists and turns that have been helpful to Grayscale’s case, and the discount hasn’t budged too much, despite purchase by Morgan Stanley and Grayscale itself. The deadline for the government’s decision is July 6, when the SEC must make a decision. Grayscale indicated for Bloomberg what they would do will likely take further legal action if the ETF is not approved by then.

I think it will be approved. I could be wrong, but this would greatly expand the pool of people who could gain effective access to Bitcoin and avoid some of the very publicized issues with people losing or stealing their BTC. We’ll see. This should also support the price of BTC in the long term, as people who did not previously own Bitcoin, as it is too complicated to do, can buy.

It’s no secret that I’m bearish in the market right now, but GBTC is one of those special situations that can make money even if the market goes down. Bitcoin probably wouldn’t go up if the market went down a lot, but 34% is a decent cushion. Twitter (TWTR), which is trading below its acquisition price, and Activision Blizzard (ATVI) are also worth checking out. If all three trades complete (I assume they will all complete eventually), you can get a good return from each even if the stock market goes down.

Is Bitcoin safe now?

Bitcoin and safe don’t usually go in the same sentence, but the Grayscale Bitcoin Trust is probably the safest way to own Bitcoin. If this conversion is approved, you get a 34% kicker on your Bitcoin investment. Grayscale charges a 2% annual management fee, but I expect this to decrease over time, especially if the government allows competing ETFs to enter the market (this is likely if GBTC is approved for the ETF conversion). At some point, I think we’re going to get a Bitcoin ETF with an annual fee of 50 bps or less, in which case investors should be happy to be able to gain exposure to crypto without paying excessive fees.

It should be noted that Bitcoin is now a risk asset (and certainly not a safe haven asset) because it is so widely held. This means that if the stock market crashes, I don’t think Bitcoin would go up, but at some point over the next two years, I think BTC could decouple from NASDAQ in the face of growing crypto adoption. cash.

Other Bitcoin catalysts to watch:

  • Regulatory acceptance. The Republic of Panama passed a bill expand the use of bitcoin and allow bitcoin to be used as legal tender with the government. El Salvador has already made headlines for its foray into Bitcoin, although both positive and negative. The idea of ​​small countries experimenting with bitcoin isn’t new, but the process helps find use cases through trial and error and helps familiarize the middle classes in more and more countries with the potential of BTC.
  • Tether (USDT-USD). The Fed raises rates and financial conditions begin to tighten. If one or more stablecoins see a run on the bank, that could be a big deal. Tether now has over $83 billion in liabilities (and journalists questioned several times the potential liquidity and solvency of its asset), so any panic in that currency or another could trigger a big crypto selloff. If this were to happen, I would view this as a buying opportunity for BTC. Tether is far from the only stablecoin with a lot of questions asked, but it is the biggest.
  • Bitcoin halved. Although not fixed until 2024, the inflation of Bitcoin by miners (now less than 2%) will effectively stop with the next halving in 2024. I’m optimistic that the Fed will really reduce inflation after pivoting its position, but with the BTC halving, the coin’s inflation will be lower than 1%, on par with most safe haven currencies. Although the volatility will take time to decline, I think you have to like the long-term outlook for BTC here with growing acceptance, slowly declining volatility, and disinflation. The short term could be heavily influenced by other areas of crypto or NASDAQ (QQQ), but in the long term Bitcoin should be a great store of value.

Is Bitcoin Buy, Sell, or Hold?

At this exact moment, Bitcoin is stuck due to the bearish momentum in stocks in general. I don’t know if I would put a whole lot of new money to work unless the price of BTC drops further. GBTC however, I would say is a buy due to the particular situation with the ETF conversion. 34% is a lot of cushion, and your downside is at least somewhat limited by the book value of the fund. Conversion really should be a matter of “when” and not “if”, offering a good way to turn a profit for patient investors.