GBTC ETF: Ready to Impress, Why? It’s Just a Cyclical Matter (NYSEARCA:GBTC)

You might be thinking, “Ugh… Alright, another analyst is talking about how great Bitcoin is and how it’s going to revolutionize the financial market.” Yes, here I am, but this time I’m going to share with you an interesting and peculiar parallelism that really blew my mind. In my opinion, there are many reasons to remain bullish on Bitcoin; a curious combination of Halving, fiscal and monetary policy, global instability and the emergence of new investment channels in cryptocurrencies (ETFs) could really lead to a significant explosion in the price of the Grayscale Bitcoin Trust ETF (NYSEARCA:GBTC).

A Strange Parallel Between Halving and Market Cycles

Hasn’t anyone already noticed a strange parallel between the advent of the halving and the end (or beginning, depending on your perspective) of a short-term economic cycle, à la Ray Dalio? Let me explain in more detail.

First of all, everyone knows how halving works. In simple terms, BTC halving is a scheduled event that happens roughly every four years, where the reward for mining new blocks is halved. It is essentially a mechanism designed to control inflation and encourage the long-term value of Bitcoin. Focus on this: “designed to control inflation.” In my opinion, this slogan behind the Bitcoin ecosystem sounds really good, especially in times like these. Bitcoin was born in 2008, after the great subprime crisis, as if it was the answer to a dysfunctional ecosystem, governed by inefficient mechanisms.

I would like to draw your attention to this point: every 4 years (on average), the reward for mining new blocks is halved. Do you know Ray Dalio’s business cycle theory? It divides market cycles into two broad categories based on the time horizon: the one we are interested in is the short-term cycle. This cycle typically lasts 5 to 10 years and is based on the normal ups and downs of the economy, driven by credit expansions and contractions. These cycles are characterized by periods of economic growth followed by recessions, mainly influenced by the monetary policies of central banks.

If we look at the last 15 years, starting from 2008, we can say that this “mini cycle” has occurred with a frequency of 4 years: 2008, 2012, 2018, 2022 (and actually, also in 2020). Bitcoin halvings occurred in 2012, 2016, and 2020. It almost seems like Bitcoin is making a mockery of traditional economics. When the value of fiat money decreases due to politics and monetary policy, the value of Bitcoin increases, supported by mathematics and not by policy makers.

Why am I bullish on GBTC?

Now, I am really confident about the rise of GBTC. For several reasons, all centered around the same concept: “The price of BTC is destined to increase as long as the traditional ecosystem continues to function as it has for the past decade.”

What will probably happen:

Rates are very likely to be cut in September

Everyone is talking about the September interest rate cut. According to the CME’s Fed Watch tool, the probability of this event is 100%; in practice, the market is assuming with certainty a rate cut in 2024, as Powell mentioned at the last FOMC meeting. Traders are therefore trying to price the market in light of this event, which naturally causes a downward trend in Treasury yields and a fall in the most speculative markets, such as the high-tech (Nasdaq 100).

Currently, the 10-year Treasury yield is around 4.26%, while the September 2024 federal funds futures price is 94.775, implying an expected interest rate of around 5.225%. Currently, the federal funds rate in the US is between 5.25% and 5.50%, so the market is confident that the Federal Reserve will start cutting rates at the upcoming meetings.

Let me start by saying that historically, interest rate cuts have been associated with BTCUSD price increases. Now, I would like to add one more technical consideration before moving on to another perspective: when the market starts to anticipate a Fed rate cut, BTCUSD price starts to increase. Naturally, Bitcoin has a short data history, but this happened in 2018. To be more precise, when the effective federal funds rate peaked, BTC price started to increase, and the same thing happened in 2023. After the initial surge, the market started to take profits, and sentiment in the decentralized world decreased along with the market cap.

What happens then? A very curious thing happens: when interest rates start to fall and sentiment returns to a state of fear (measured by the Fear and Greed Index, which we will look at later), the price of BTCUSD skyrockets, reaching new unexpected highs.

The dollar could probably fall

I have already explained in this article why I really think that now is not the right time to be exposed to the dollar. Historically, there is an inverse correlation between the price of Bitcoin and the dollar. I believe that when the value of the dollar, measured by the DXY index or the UUP ETF in this case, starts to fall, the value of dollar-denominated assets becomes more interesting to buy. It is an easy trading mechanism, but ultimately it also regulates the stock market. For example, in this situation, the price of commodities and emerging market stocks starts to rise.

Even though it’s a bit old, I think this article does a good job of explaining the correlations regarding Bitcoin.

Fear is rising and global economic and political instability is increasing

Greed is on the rise, both in the traditional and decentralized markets. CNN’s Fear and Greed Index shows market sentiment very well: the indicator has reached 41 points, the FEAR zone. At the same time, CMC’s Fear & Greed Index is a little better, at 59 points, indicating a neutral zone. This expresses a better sentiment in the cryptocurrency market compared to the stock market, where there is a lot of pessimism at the moment. The reason? In my opinion, it is the great sense of loss among investors. At the moment, political and economic uncertainty reigns supreme. The CME volatility index, VIX, is close to its minimum, and after touching the lowest point in the last five years, it suddenly began to rise rapidly.

In particular, Bitcoin seems to thrive on political instability, which “oddly” appears every four years during the US presidential election. Indeed, there is a high correlation between VIX and BTC, but there is a strong positive correlation between BTC and gold. Gold reacts very well to economic forecasts, and Bitcoin, in my opinion, follows with a little latency and much more volatility.

This lack of trust is like fuel for the cryptocurrency market. While many people criticize Bitcoin, claiming that it is not a safe haven like gold, I suggest trying to stop analyzing BTC on a normalized chart and start looking at it on an exponential chart or with its 200 moving average. Trust me, everything will suddenly become clearer.

Why GBTC?

In this article, I don’t want to spend a lot of words explaining why I chose GBTC to invest in Bitcoin; I think you can find a great explanation here.

I would like to focus on an element that is generally underestimated: the weight of the expense ratio. As you may already know, GBTC’s expense ratio is 1.50%, which is higher than its competitors, since it was a closed-end fund at the time. There are alternative ETFs on the market with lower costs; one of them that I also like is iShares Bitcoin Trust Exchange Traded Fund ((IBIT)) by BlackRock.

At the same time, if we look at the performance chart since the launch of other ETFs, investing $10,000 in GBTC has returned more than its peers. Maybe tomorrow, the cost of this ETF will eat into its performance, but for now, GBTC remains the most profitable alternative on the market.

What could go wrong?

Even though the market is confident, or rather certain, that rates will be cut in September, the Federal Reserve has not officially commented on this information and will not do so until September. I believe that, for several reasons, the Fed will eventually be forced to cut interest rates. However, if there is one thing I hate about markets, it is when they discount something with certainty. The moment that certainty becomes uncertain again (for one reason or another), panic sets in. If the Fed were to delay the first rate cut again in September, I think it would not bode well for Bitcoin. In my opinion, it would not invalidate my thesis, but it would most likely delay the appreciation of the cryptocurrency.

Conclusion

I think GBTC is one of the best opportunities in the market right now. I am bullish on the cryptocurrency market, especially Bitcoin. I really believe this fund could grow in the long term, but at the moment there is also macroeconomic and mathematical data that supports my thesis, and for that reason I see alpha that I can benefit from.