Special Sunday Alert: Bitcoin (GBTC)

I have been spending much of the past two days studying bitcoin in an attempt to answer three questions: 

(1) Is it in a price bubble?

(2) If so, where is that price bubble in its price-time continuum, i.e., start, middle or end?

(3) Can bitcoin be effectively traded through our Special Situation stock, GBTC, currently the only bitcoin ETF? 


(1) Probably yes;

(2) No one knows;

(3) Absolutely.

Since our last GBTC buy signal on Oct 31st, GBTC has risen from $828 to a close on Friday of $1,074, a gain of 30%. During that same time frame bitcoin has risen from $6,390 to $8,255, also for a gain of 30%.

Over the past 12 months GBTC has risen from $103 to $1,074 for a gain of 945%.  During that same time frame bitcoin has risen from $740 to $8,233 for a gain of 1,012%. 

These numbers suggest that for all intents and purposes bitcoin and GBTC move in tandem.Accordingly, if you want exposure to the "bitcoin bubble," GBTC is an effective (as well as much easier bought and sold) bitcoin surrogate.

As I have suggested in prior posts, by applying our simple trend following algorithm to the price movement of GBTC, we can mitigate the risk of periodic bitcoin price declines. The cost of that insurance is that at times we will get back into GBTC at higher prices than exited (but it is equally as likely that we can get back into GBTC at lower price levels than exited). 

There is opportunity here, along with risk, but after a couple of days of intense study, I have concluded that the reward, especially with our trend following algorithm, far outweighs the risk.

Finally, and in the spirit of full disclosure, I am now trading the GBTC model in my managed accounts and hedge fund.

Note: Since Friday's market close bitcoin has risen from $8,233 to $9,200, up about 12%. So long as that holds overnight, expect GBTC to gap up on Monday.