Famed short seller Andrew Left of Citron Research is making another major call that should have Bitcoin investors listening. Mr. Left has made a name for himself over his vast career as a short seller, which includes his latest proxy battles with Valeant Pharmaceuticals International, Inc. (NYSE: VRX), Wayfair, Inc. (NYSE: W), NVIDIA Corporation (NASDAQ: NVDA), Exact Sciences Corporation (NASDAQ: EXAS), and more. As of September 1, 2017, Mr. Left has set his sights on a new target: Grayscale Investments’ Bitcoin Investment Trust (OTCQX: GBTC).
Unlike his past targets, the Bitcoin Investment Trust is not actually a company, but rather an investment fund that is supposed to closely track the underlying trading action in Bitcoin prices. Mr. Left makes it clear that he is not specifically targeting cryptocurrencies as a whole, but rather the specific investment fund that has continued to garner lots of attention this year.
In the latest Citron Research report on the Grayscale Investments Bitcoin fund, Mr. Left and associates make the case to investors and regulators that the Bitcoin Investment Trust is a massive bubble waiting to wreak havoc on unsuspecting investors.
Here is the problem: the Bitcoin Investment Trust is trading at a massive premium to underlying Bitcoin performance. To be specific, underlying Bitcoin prices have surged around 400% in 2017, while the Bitcoin Investment Trust has skyrocketed over 726%. With its current market cap around $1.8 billion, the Bitcoin fund is worth twice the value of actual Bitcoin. This massive premium is putting investors at considerable risk. Even Mr. Left calls the Bitcoin fund the “most dangerous way to play Bitcoin.”
Earlier this past week, the Bitcoin Investment Trust traded above $1,000 per share for the first time. However, as of September 2, 2017, the fund has a share price of $800. However, Citron Research says the fund should be trading no higher than $550 a share, based on its underlying total asset value.
Considering the fact that the Bitcoin fund holds 174,174 Bitcoins, the total underlying value stands around $830 million, when considering a Bitcoin price of $4,775.04. However, as mentioned earlier, the fund has a market cap of $1.8 billion. This is a major value disconnect that is ultimately a disaster waiting to happen. As is the case with all bubbles and massive premiums, at some point the euphoria will fade away and unsuspecting investors will be left holding the bag.
According to MarketWatch, Grayscale Investments is currently planning to uplist the Bitcoin Investment Fund to the New York Stock Exchange in a $500 million public offering deal. However, the SEC is still set to rule on two proposed Bitcoin ETFs, which could make and break Grayscale’s NYSE ambitions. One thing is clear though, the Bitcoin Investment Fund is a dangerous vehicle that is currently trading at unsustainable levels compared to the underlying Bitcoin asset. Investors should take note and understand the risks that are involved with this investment fund; always know what you are investing in.