Back on September 28, Bitcoin Investment Trust (OTCMKTS:GBTC) announced that it was withdrawing its Rule 19b‑4 Application that was then-currently pending before the Securities and Exchange Commission. With the application, the company was seeking approval to list shares of the Bitcoin Investment Trust on NYSE Arca and, in doing so, essentially become an exchange-traded fund (ETF) – the first of its type.
At the time of the announcement, the implications of a Chinese regulatory crackdown on bitcoin exchanges and initial coin offering (ICO) operators was unclear and bitcoin was yet to recover, from a price perspective, the steep losses that it suffered on the back of said uncertainty. As such, the withdrawing of a listing application by one of the space’s more reputable publicly traded entities was quickly picked up by major financial outlets and presented as yet another disappointment for bitcoin and the blockchain space as a whole.
The problem is, this view is inaccurate.
So far this year, the SEC has rejected two very similar applications, most notably one by the Winklevoss twins of early Facebook Inc (NASDAQ:FB) notoriety, and the chances of Bitcoin Investment Trust succeeding where the latter two had failed were practically nonexistent.
The reasons given by the SEC as to why it was unwilling to accept these applications were rooted in macro regulatory issues – something that doesn’t get fixed overnight – and, with these reasons in mind, it’s reasonable to expect to have to wait at least another 12 months or so before the regulatory body in the US changes his mind.
Even if it was of the opinion that the issues were resolved (and as adoption becomes more and more mainstream, this isn’t out of the question) it would almost be an admission of error if the SEC was to turn two ETF applications down and then accept one identical application almost immediately subsequent
So why is this important now?
Well, because since the withdrawal, Bitcoin Investment Trust has dipped 10% to current levels in and around $669.
In contrast, the price of bitcoin has risen more than 20% from just below $3900 to current levels above $4800 during the same period.
While it doesn’t have the regulatory go-ahead to call itself one, when all is said and done, Bitcoin Investment Trust is essentially a bitcoin ETF. It’s designed to track the underlying price of bitcoin and, in doing so, offer those looking to gain exposure to bitcoin without having to buy the asset itself an opportunity to do so.
As such, when bitcoin rises, so should Bitcoin Investment Trust.
This is how its happened in the past, and this is one of the first times we have seen complete divergence. Sure, Bitcoin Investment Trust has risen faster than bitcoin and vice versa, but for one to rise (bitcoin) and one to fall (Bitcoin Investment Trust) is very rare.
Our thinking, then, is that the only reason this divergence exists is because markets are still holding negative sentiment over Bitcoin Investment Trust because of the misinterpretation surrounding the company’s withdrawal of its application.
Once this misinterpretation resolves and price rebalances to reflect the resolution, we should quickly see Bitcoin Investment Trust not only recover to its pre-withdrawal pricing at $740 but also beyond so as to subsequently reflect the rise in the price of bitcoin during the period across which Bitcoin Investment Trust has been declining.
Keep in mind that this is a very volatile market right now and, if bitcoin falls, so will Bitcoin Investment Trust. That’s the immediate risk on a position at current levels.
With that said, however, and taking the above-discussed divergence (and its rarity) into consideration, the chances of upside seem to far outweigh those of downside very near term.
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Image courtesy of BTC Keychain via Flickr
Disclosure: We have no position in GBTC and have not been compensated for this article.