URGENT: Lifetime Opportunity in BTC Calling NOW (Part 2)



Here is how to answer the call . . .

This Part 2 contains the whole treasure map.

That makes chock full of key content. That also makes it a lot longer read. But if you can read it to the end, you will find it to be extremely rewarding!

(And if not, then please feel free to crush me with your comments.)

To be able to fully grasp this opportunity we need to work up from the base of a common foundation. To assure that common foundation our starting point must include some key bits of basic information to be clearly understood between us:

  1. Wealth is the value of what we own minus what we owe (aka Net Assets or Net Worth or future purchasing power);
  2. Why seek wealth? For the freedom to store future purchasing power and/or invest it to gain even more value for even more future purchasing power;
  3. Value is primarily determined by the relative scarcity (of any resource such as time, energy, land, labor, materials and/or capital etc).

But why store our future purchasing power (that we sacrificed to save) if it can be too easily taken away from us, and/or its scarcity being too easily inflated away from us (e.g. by the official printing of unlimited fiat currency), against our free will?

Satoshi Nakamoto was way ahead of the curve by wisely asking virtually that same basic question more than 14 years ago. Luckily for humankind that person then answered that question in the most brilliant way ever imagined. To put that brilliance into action, Bitcoin was born.

Bitcoin (“BTC”) is now:

  1. The most scarce store of value ever known (only 21MM BTC max);
  2. Its value cannot be inflated away (21MM BTC max. by core code);
  3. If your private keys are kept private, it cannot be easily taken away;
  4. It is easily divisible and freely transferrable worldwide at neglible cost via a decentralized network made up of thousands of dedicated individuals and companies located around the globe.

There are other fine and important attributes (such as being trustless and permissionless), yet only those four bullet points above are enough to make BTC clearly the best store of the value of our future purchasing power!

Okay, so now that we are clear about why BTC is the world’s best store of the value of our future purchasing power. But as important as that is, especially in this world of recent binges of fiat printing gone mad (despite the current side-show of this small and likely relatively brief respite), is that the only reason why we want exposure to BTC?

As the skeptics quite accurately skeptics point out, BTC does not generate or pay any income to hodlers like stocks, bonds and real estate typically do. It has no business income which could grow to support a growing underlying price. So other than just protecting our future purchasing power from being inflated out from under us by central bank fiat printings, why would we (or should we) be quite so hot to hodl BTC instead of SCHD?

Because at this time, BTC is not only the scarcest store of value in the world, it is also the youngest and the least widely adopted one.

So the big current opportunity to use BTC to actually gain wealth (beyond just storing our wealth without fear of inflation from future tranches of fiat printing), is expected to come from its adoption and purchase by the millions of people and institutions who have not yet done so (and also those who have started but have not yet bought their intended allocation).

That is what is behind the huge upside projections made by many pundits. And you do not need to look very far to see the vast potential that would come from merely replacing a significant percentage of the gold bullion being held worldwide for the same basic purpose. The upside becomes even far more mind boggling if you look at the maximum potential upside in relation to the total amount of the world’s fiat money supply.

This is why BTC has been described by many as, the greatest assymetrical speculation of our lifetimes.

With a current downside of less than $25k per BTC, and the projections made by others (not me) who have made adoption assumptions based on the sizes of the gold market (up to $500k per BTC) or the world money supply (up to $1MM or even to $10MM per BTC), very long-term hodlers may be around to see their investment go up 20-fold to 40-fold or even, gasp, 400-fold. Very few investments ever have such vast upside (except for perhaps venture capital or private equity investments which typically require multi-million dollar minimum investments).

But why do we call that assymetric? It is because the maximum downside is currently less than $25k per BTC even if BTC, gasp, goes down to zero.

There is no reason to debate about zero. While every day that BTC survives, probably makes its death increasingly unlikely, it still remains a possiblilty. The people who control the fiat are salivating to kill it because they desparately want to maintain their control over all of the money. They are just not yet sure how to go about it. So, in the meantime their cronies have been “enlisted” (probably unspoken) to jawbone BTC out of existence, which a few have very gleefully tried, most likely for more future favors. But never underestimate the opponents. They are ruthless and motivated.

To be intelligent successful investors . . .

We must never downplay any risk.

We must first look it square in the eye. Then we place our money and take our chances with our eyes wide open.

Yes, I now apologize to you. I am aware that many or even most of you may already know all of that. But please bear with me because . . .

The time for the big surprise that will so delight you, is now finally here!

Because with those common understandings firmly in mind you can now digest the huge opportunity that you may have already decided to pass up for reasons that you will now be able to see as being as least partly erroneous, or perhaps this opportunity may have just been flying beneath your profit seeking radar altogether. In either case, let’s get it on the table!

After all, if we like the idea of making asymmetrical speculations, then what could be better than making our asymmetrical speculation even much more asymmetrical by adding an additional layer of asymmetry?

Remarkably, as of this moment of writing (13:21:05 UTC) on 26 Feb 2023 with BTC at exactly $23,173.64, we still have the opportunity to get safe exposure to BTC at somewhere near its most recent discount of 45.79%, which would equate to a price of only $12,562.43 per BTC. Really!

By now you may have already deduced that I what I am talking about is the Grayscale Bitcoin Trust (trading under the stock symbol GBTC), which can be purchased through nearly any ordinary stock brokerage account, most recently selling at a price which is more than 45% below the per share value of the underlying BTC held in the trust (“Net Asset Value” or “NAV”).

Of course through our awarness of the many debacles in the crypto space during 2022, we have all become more deeply aware of the truth of the great truism stated as, “Not your keys not your coins”. The maxi’s would have every right to say, “We told you that all along, why didn’t you listen?” They would also have every right to now say about buying GBTC, “Hello, is anybody home, what more do we need to do to wake you up in there?”

While that may be the totally appropriate initial knee-jerk reaction, sometimes (as in this case of GBTC) it will pay you big to dig a little deeper.

Let me explain . . .

Everything we do in this life has associated risks. To succeed in investing, we do not run from risk, but neither can we afford to ignore or downplay any aspects of the risks we are taking. Successful investors, measure and manage risk by comparing it to the reasonable expectation of reward.

I love the BTC maximalists and am in complete agreement with them . . . at least in theory.

They are the absolute purists who best understand, most appreciate and most staunchly support BTC. I think it would be fair to say that Satoshi was the original maximalist of the very first and highest order.

Talking the maximalists (“maxis”) talk however is far easier than walking the maxis walk. I completely agree that 100% self-custody is the theoretical ideal. That is if you, like most maxis, are well-schooled and very comfortable with every key aspect of all of the related technology, you are supremely self-confident, self-reliant and are thus able to completely trust yourself to not make the occasional careless or stupid mistake in this area of your highest competence; then perhaps hodling 100% of your BTC via your own self-custody is not a big risk for you. Most of us have a great deal of competence in one or very few aspects of our lives. In those few areas of our greatest competence, our risks of error are considerably lower.

Those two key principles are echoed by the well noted and many times quoted key thoughts of stock market super-investor Warren Buffett (yes I know that he is also a major FUD stud, but the guy is in his 90’s, has made it solidly into crony-land and has huge vested interests in the status quo; but that does not diminish his success as an investor over the past 50+ years). Buffet says it like this: Stay within your circle of competence. and also ostensibly, when you are squarely within your circle of competence, then “Diversification is protection against ignorance”.

Perhaps the maxis are smart enough to “know” that BTC will survive and thrive in the face on any and all possible attacks, but I am not. So while some maxi’s may invest 100% of their net worth into “stacking sats”, most others advise that you should not invest any more in BTC than you can afford to lose. I cannot afford to lose my entire net worth, so I admit my ignorance and do not invest 100% of my net worth in BTC.

I see it in the same way regarding the question of 100% self custody.

In practice, for many (or most) people self-custody is fraught with risk. Using myself as a case in point. I know that I don’t know what I don’t know. I also know that even within my small circle of competence, I am “quite human” in that I am prone to making errors despite my best efforts to avoid them. So I fear the risk of fatal errors from which there is no possible recovery.

And so yes, self-custody is certainly the most advantageous means of protecting our hodlings from most others. But, it is also certainly the most disadvantageous means of protecting our hodlings from ourselves (and also some others, which will be explained below).

Time to look the risks and potential disadvantages of self-custody, squarely in the eye:

They can be summarized as the loss of private keys by:

  1. Memory lapse;
  2. Cold storage malfunction;
  3. Confiscation;
  4. Fire;
  5. Flood;
  6. Hurricane;
  7. Tornado;
  8. Earthquake;
  9. Sinkhole;
  10. Mudslide;
  11. Moisture;
  12. Corrosion;
  13. Insects;
  14. Rodents;
  15. Theft;
  16. Embezzlement;
  17. Robbery;
  18. Disability;
  19. Death;
  20. Murder.

These risks are very real and potentially very big. Yet, I am not aware of any really strong solutions. Just platitudes and half-backed solutions which fail to address the most important questions. But they are somehow adopted as being the best currently available options along with a big dose of hope and optimism, and a cavalier, “Well, if that is the best we can do, then we just have to accept it”.

Really? How can we have the most elegant solution ever imagined for a store of value (and more), and yet just accept the barest of crude means for safeguarding it from all of the many serious risks of self-custody we face??

I am painfully unaware of any great plans which simultaneously protect a hodler from all risks of loss of keys due to any and all perils including: lapse of memory, malfunction of cold storage, confiscation, fire, flood, hurricane, tornado, earthquake, sinkhole, mudslide, moisture, corrosion, insects, rodents, theft, embezzlement, robbery, disability, death & murder.

If any of you know of a great plan that will effectively protect against all of those risks, then I am begging you to please share it with me now!!

Because if I do not very soon find such an all encompassing self-custody security plan, then I will very soon begin attempting to invent one myself.

But I do not want to attempt to “reinvent the wheel” if such a plan may already exist yet simply remains unknown to me at this time.

So, please, please help save me from “reinventing the wheel” if you can!!!

Until that plan becomes known to me, or until I invent one, for right now at this moment . . .

What is our best available option to manage and mitigate those risks of self-custody?

To simply diversify at least SOME of it away!

If self-custody were our only option, then so be it, we would simply add the many risks of self-custody to the other risks of investment exposure in BTC.

But that is clearly NOT the only reasonable option available to us now. Rather, we have GBTC which holds its BTC in a Trust using mechanisms (technological, procedural and legal) which are even safer than any known self-custody situation, with the one big exception being that (as with any intermediary account), you do have exposure to the risk of your stockbroker going bankrupt (which is far less likely than your crypto broker going bankrupt), and you still need permission to withdraw your money (or shares) from your stockbroker.

Grayscale is an extremely successful company operated by the Winklevoss twins, who made their first fortune from their early roles in the startup of Facebook, their second fortune by investing in BTC and now their third fortune by building Grayscale. Grayscale is co-owned by Barry Silbert’s Digital Currency Group via its venture capital investment in Grayscale.

So then, why is GBTC now available at such an enormous discount to the value of its BTC holdings?

The shares are selling for less than the NAV of the underlying BTC holdings because since the beginning of the big decline in BTC prices there have been more motivated sellers of GBTC than buyers of GBTC, for a few very basic reasons:

BTC has been in a bear market (prices trending down) since late 2021. Bear markets typically bring out more motivated sellers who either wish to sell to take what is left of their diminishing profits, or are forced to sell by margin calls if they have been buying using leverage (borrowing against their holdings). The further the prices decline, the more forced margin call selling occurs. Even the famed Digital Currency Group (“DCG”) was recently forced to sell some of its GBTC holdings at this deep discount in order to satisfy other debt obligations. While still others may be giving up on BTC as an asset class and are hot to deploy remaining capital elsewhere.

Here are all of the negative reasons that may further explain why the huge discount persists and is still available (which are currently known by me):

  1. The 2% of Net Asset Value (“NAV”) management fee paid to Grayscale;
  2. Repeated failed applications to convert GBTC to an ETF (which would nearly immediately bring the price of the GBTC shares up to their NAV);
  3. No redemptions at NAV are being made available by Grayscale;
  4. Post FTX ponzi disasters have dramatically heightened adherence to the mantra of “Not your keys, not your coins”;
  5. The perceived bankruptcy risks based on the bankruptcy of one of Grayscale’s DCG sister companies and/or the bankruptcy of DCG;

Here are all of the positve reasons why the huge discount is erroneous and will not last (which are currently known by me):

  1. Grayscale has been sued by a hedgefund client who is asking the court to intervene and provide relief by ordering a reduction in the annual maintenance fee, especially in view of Grayscale’s refusal to apply regulatory permission to allow redemptions of GBTC at the NAV by simply liquidating the pro-rata share of the BTC being held in Trust;
  2. Grayscale has sued the SEC to have the court compel the SEC to approve any of its many requests to convert GBTC to an Exchange Traded Fund.
  3. Redemptions at NAV are being fought for in the lawsuit described in number 1. above. Further the eventual successful conversion to an Exchange Traded Fund (“ETF”) comes automatically embedded with a most efficient mechanism for the creation and redemption of units on an automated basis, which is available on every trading day;
  4. Both Grayscale and its official third-party Custodian, Coinbase Custody (an NYDFS regulated crypto custodian) have both attempted to educate and build confidence in their solution versus self-custody. You can easily see for yourself by quickly Googling “Introduction to Coinbase Custody”. You will see that their description is very tight and impressive;
  5. Grayscale Bitcoin Trust (“GBTC”) is a trust which makes it a bankruptcy remote vehicle (legal speak meaning that its assets are not included in any bankruptcy of any associated parties). So, no bankruptcy risk except if the Trust itself were to go bankrupt. But can be no big losses because the Trust forbids Grayscale from pledging GBTC assets for any purpose including borrowing, and Coinbase Custody has those rules and would not allow that to be done even if Grayscale went so far as to ask;

So with GBTC now available at a huge discount to its actual BTC holdings, we are getting paid (or at the very least getting reimbursed for our fees) to offload some of our self-custody risks and duties onto Grayscale/Coinbase!

For all of the foregoing reasons, I do not expect to see any opportunity this good ever again in my lifetime.

Right now I am only wishing I had more dry powder and/or more maxi confidence to be able to allocate a larger percentage of my net worth.

But no more wishing, now is the time for action, and this is my plan:

The BTC bottom may have already been made at $15,460 on 11/21. If so, then I missed it because I had expected it to occur lower, near or below $13,000. I had (and still have) funds available to buy at such prices if they ever come. However, as the evidence of a new bull continues to mount up, and since the incredible GBTC discount opportunity is available right now, I will take a portion of the funds that were earmarked to buy BTC at and/or below $13,000, and use them to buy more BTC in the form of GBTC, now.

At the current discount I will be getting BTC at an equivalent price below $13,000 just as I had been hoping for, and I get to avoid some self-custody risk, all in one fell swoop!

But, by all means, if you are aware of anything that I have missed in my analysis of GBTC by seeing it as the greatest opportunity of my lifetime, and that I am wrong about that conclusion because it only appears to be a great value, but is actually some land-mine of a value trap, then PLEASE tell me!!!

Nothing written here is advice of any kind. Rather, it is only information and the (possibly clueless) opinions of the author for education and/or entertainment purposes only.

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URGENT: Lifetime Opportunity in BTC Calling NOW (Part 2) was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.