Many Reasons To Be Bearish On Bitcoin Price But GBTC Premium Isn’t One Of Them, Economist
- As GBTC premium drops, analyst Timothy Peterson BTC’s drop to $6,000
- According to economist and trader Alex Kruger, this is plain “nonsense.”
- GBTC premium “not useful for making price calls,” Kruger said
Bitcoin is currently trading below $8,000 at $7,948, as per Coincodex and at the moment, there are “many reasons to be bearish,” says economist and trader Alex Kruger.
But the GBTC premium is not one of the reasons that will drive BTC price down as it just reflects current conditions and “not useful for making price calls.”
Recently, Timothy Peterson at cane Island Alternative Advisors published a blog post where talks about the relationship between the premium investors pay on Grayscale Bitcoin Trust (GBTC)’s OTC shares and the leading cryptocurrency’s price.
Based on this relation, it is likely the Bitcoin price could drop as much as 30-40% in the coming months as the GBTC premium has fallen from $4.00 per share to $2.00 per share.
“Bitcoin’s price should fall from about $12,000 to $6,000,”
Although the analyst says the relationship between GBTC premium and BTC price hasn’t been predictable and stable over time, fundamentals models also suggest BTC’s value at $6,000.
“It appears that institutional and long-term US investors in GBTC are expecting this price level for bitcoin as well,” he wrote.
However, according to Kruger that is simply “nonsense.”
“Many are now talking about how BTC may drop to $6,000 according to GBTC's premium. That, my friends, is nonsense.”
The correlation between Bitcoin and lagged GBTC variables, Kruger explains is “consistently zero.” As such, predicting the value based on GBTC has no value.
He points out that the correlation between BTC and GBTC premium is moderate, 0.25 in the last year and “statistically significant.” But correlations with lagged premiums hover around zero and not statistically significant, he added.
“Predicting the value of bitcoin-based on GBTC premiums widening/narrowing has no value.”
The GBTC premium to NAV, he says is reflective of current market conditions and not a leading indicator for the flagship cryptocurrency.
Using the GBTC premium to find BTC value would be analyzing how weather affects BTC.
“The tail does not wag the dog,” concluded Kruger.
However, Tom Lee, the managing partner and head of research at Fundstrat says, “Low premium has been an interesting time to watch bitcoin—not sure if it’s tail wagging dog but low premium does tell us a bit the weakness of sentiment.”