Grayscale Bitcoin Trust (GBTC) through the DynaLogic Lens
Grayscale Bitcoin Trust (GBTC) through the DynaLogic Lens
It’s not about winning it’s about not losing!
Crypto currencies have been the most talked about asset class for the last several years. The bulls are trying to hang on to the belief that it will be another huge success like Apple or Amazon or possibly more. The bears think otherwise. We have certainly seen an explosion to the upside and now a steep decline. In June of 2020, at the depths of the pandemic, Bitcoin traded under $10,000 and exploded to over $63,000 by April 2021 and hit an all-time high of over $67,000 on 11/21/2021. As of 5/29/22, Bitcoin is trading around $29,300. While Bloomberg does track the price of Bitcoin, it does not support a total return function (TRA) for the currency, because the price is constantly being updated, but GBTC, which DynaLogic tracks, and is highly correlated to Bitcoin at 94.97% over the last two years, is supported by the Bloomberg TRA function.
Price History Bitcoin XBT and GBTC
Source Bloomberg
GBTC reached a high of $56.70 on 2/19/21. From that date, the price of GBTC has declined 66.56% as of 5/27/22. All along the way, there were thousands of prognostications of Bitcoin’s success. It may well pan out, but a 66.56% decline needs a 200% increase just to get back to the previous high of $56.70. Possible but not likely in the near term.
The DynaLogic platform is about managing risk. Let’s take a look at the DynaLogic sell signals of GBTC over the last two years. Remember, sell signals are based on a predetermined change in price from a previous sell. On average, there were approximately 5 sell signals per month over the 2-year period all while the price of GBTC was moving higher. None of the signals were large with most in the 1-2% range.
What if we implemented the sell signals provided by DynaLogic, paid any applicable capital gains tax, and used the net proceeds to purchase the SPY, S&P 500 ETF to diversify the holding; would an investor be better off?
Scenario 1: Hold GBTC
Beginning Value $50,000, Ending value $89,669.41 and unrealized capital gains of $7,933.89 for a net value of $81,735.54. Still own 100% GBTC.
Scenario 2: Sell GBTC based on DynaLogic sell signals, pay applicable capital gains tax, and invest the net proceeds in SPY.
GBTC ending value after capital gains tax, $39,878.86, SPY value after capital gains tax, $67,88.428 for a total after-tax value of $107,763.14 or a 31.8% improvement in return. Additionally, of the $107,763, 37% is allocated to GBTC and 63% is allocated to SPY.
Note: All trades are based on closing prices which may be higher or lower than actual prices.
It is quite possible GBTC moves higher from here over the course of the next few months and years. Perhaps past price actions will inspire future actions to take a little “off the table” or “Just do something” as GBTC is racing to the moon.
“Concentration creates wealth, diversification preserves wealth.”
Warren Buffett
(Note: DynaLogic provides to subscribers relevant and real time market movement information on a host of equity securities. Signals (sell or buy) are based solely on mathematical changes in the price of a security. No other methodology is used.
DynaLogic is not a registered investment advisor, and it makes no representation or recommendation concerning the purchase or sale of any security investment product; DynaLogic provides no advice or recommendation whether a subscriber should or should not act on any signal a subscriber receives, and it has no knowledge whether a subscriber, in fact, acts on a signal or any signal; DynaLogic maintains no portfolio account or other investment information on any subscriber.)