How to Trade an Inverse Bitcoin ETF

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It’s no secret that bitcoin is one of the most volatile assets in the world. Regardless of the future of cryptocurrencies, the bitcoin selloffs seem to be notably worse than the rallies. So how can you capitalize when the price of bitcoin falls? By trading an inverse bitcoin ETF, of course.

Because an inverse bitcoin ETF has not been created yet, you need to make your own, so to speak, and short a regular bitcoin ETF. By doing this, it mimics the performance of a short bitcoin ETF.

Key Points

  • There are currently no short bitcoin ETFs available, so you need to short GBTC
  • GBTC is a bitcoin investment trust ETF; shorting GBTC equates to shorting bitcoin
  • Ally Invest is the lowest cost broker with 24/7 customer service that let’s clients buy/sell GBTC

Trading an Inverse Bitcoin ETF

It’s currently not possible to buy an inverse bitcoin ETF. However, the NYSE plans to list multiple long and inverse bitcoin ETFs from the popular ETF company, Proshares, early in 2018.

Since the CBOE and CME introduced bitcoin futures, which offer market participants a way to hedge and speculate without buying bitcoin on an unregulated exchange, the SEC has been inundated with applications for bitcoin ETFs.

Despite the lack of inverse bitcoin ETFs, this doesn’t mean it’s impossible to short bitcoin via an ETF. In fact, it’s entirely possible to short bitcoin by trading an ETF, and it actually has some added benefits.

The Current way to Trade an Inverse Bitcoin ETF

GBTC is the ticker symbol for the Grayscale Bitcoin Investment Trust, which is the first financial instrument (ETF) to track the current price of bitcoin.

1 share of GBTC = 0.00100396 bitcoins. This means when you short 1 share of GBTC, you are shorting approximately 0.001 bitcoin.

However, GBTC makes it easy for traders to get exposure to bitcoin without having to trade futures or trade cryptocurrency in a digital wallet. Because of this, there is a difference in the price of GBTC per share and the price of GBTC holdings per share.

 

GBTC market price per share updated

For example, the price of GBTC was recently trading at $10.50, but the bitcoin holdings per share value was only $7.61. So why is GBTC roughly $3.00 more expensive than the actual bitcoin that it holds?

One outspoken short seller has harshly criticized GBTC for trading at a huge premium to the actual price of bitcoin. Since it’s physically easier to buy GBTC than it is to buy bitcoin, investors have pushed the price of GBTC out of line with the assets it holds.

How to Take Advantage

Given that GBTC is not an inverse bitcoin ETF, but rather it is a long bitcoin ETF that trades at a huge premium, this is arguably good news for cryptocurrency bears.

If the value of cryptocurrency, and bitcoin specifically, continues to rise, the value of GBTC will likely rise as well. However, if cryptocurrency “crashes,” as many market participants expect it to, then GBTC offers something that an inverse bitcoin ETF never will.

When you short GBTC, you would not only be capitalizing on the current $3/share premium that GBTC trades at, but you would also be synthetically shorting bitcoin. It kills two birds with one stone.

How to Short GBTC (Same as Buying an Inverse Bitcoin ETF)

If you’re going to short GBTC, the most important thing you can do is keep your transaction costs as low as possible. As noted earlier, bitcoin is an extremely volatile asset and GBTC can easily fluctuate 20% on any given day, which means there will be ample opportunities to scale in and out of positions.

Beyond keeping your transaction costs to a minimum, you need to work with a broker that lets you trade GBTC. Ally Invest is one of the few brokers who do.

Moreover, all trades for new clients are free for 90 days. After that, ETF trades start at just $3.95, which is about as cheap as it gets. To put that in perspective, TD Ameritrade charges $6.95 per ETF trade! It’s also important to note that not every broker will allow you to short GBTC. Ally Invest offers the best pricing in the online brokerage world. It’s a win-win.

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