Why is Bitcoin investment trust a bad investment?
The bitcoin investment trust (NASDAQOTH: GBTC) is a bad way to predict the price of bitcoin.
The trust has about 0.092 bitcoins per share. In theory, when bitcoin goes up, the value of trust should go up, and when bitcoin goes down, the trust value goes down.
In the real world, things work differently. By using the historical data at the end of the market, I find that bitcoin investment trusts and bitcoins tend to move in the opposite direction when they are close to another market:
When the price of bitcoin rose, the trust price rose by 66.5%.
When bitcoin prices fell, trust prices fell only 68.8%.
This means that if you buy COINS Investment Trust when markets closed today (bitcoins Investment Trust), and be sold at the end of tomorrow, then the possibility of currency prices is more than a third, you will suffer. Of course, this means that sometimes you can be lucky to make money, and the bitcoin investment trust falls on the value of bitcoin. This happens fairly frequently – about one day in about eight trading days.
The artist’s physical bitcoin design.
Photo source: getty images.
Why is the bitcoin investment trust doing a bad job of tracking bitcoin? It’s a simple supply and demand relationship. The supply of shares in the Bitcoin Investment Trust has been relatively stable, accelerating over time. However, demand for its shares could fluctuate wildly. On any given day, that trust can be rated as the most popular stock in the likes of TD Ameritrade and Fidelity. When bitcoin surges, the need for trust often follows.
The supply and demand imbalance has led to higher trust prices. For several days, the trust’s share price was 42% higher than its bitcoin value. The premium was up to 132.6 per cent in May 2017, down from minus 0.1 per cent in October 2015.
If not buy COINS Investment Trust (bitcoins Investment Trust), it USES the same amount of cash on like GDAX encryption currency trading platform to buy COINS, so in a few days, your COINS will be more than 42% of the currency, and your Investment will completely follow the price of the currency. For some reason, however, people continue to invest in Bitcoin Investment Trust, even though they pay twice as much as Bitcoin.
Bitcoin has been an uncertain gamble, but the bitcoin investment fund has added another gamble. Even if you certainly know the value of the currency tomorrow than today is worth more, but if you buy the currency Investment trusts (bitcoins Investment Trust) stock to bet, you will loss COINS in a third of the time.
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