Efficient Frontier
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Kangaroo Markets

Efficient Frontier biweekly derivatives and markets newsletter. How accredit investors make up to 850% arbitraging GBTC and ETHE and why it might be a good idea for everyone to stack up on some Bitcoin or gold

First, a quick overview

Are the Bitcoin markets experiencing the calm before the storm? Historical charts agree. The last 7 weeks had Bitcoin hovering between $8,200 to $10,400, at close to a 3 month relative low of volatility.

Source: skew.com

Two Shades of Grayscale

Owned by Digital Currency Group, Grayscale Investments operate GBTC and ETHE, the two only exchange-traded funds selling Bitcoin and Ethereum exposure in the US markets. These private open-ended funds hold $3.85 billion in assets to date, containing 365,000 Bitcoins and 2.4 million shares outstanding. They are the only instruments investors can currently use to gain exposure to Bitcoin and Ether in their IRA or 401K retirement accounts.

The unique thing about GBTC and ETHE is that they are accessed by two completely different channels:

  1. Only accredited investors are legally permitted to deposit assets directly into the Grayscale’s funds. To do so, investors transfer either dollars or cryptocurrency to Grayscale. Dollars are converted into cryptocurrency and all the funds are kept with Coinbase Custody. The investor is given equivalent shares which are priced at NAV (net asset value), meaning in this case, the current market price of the cryptocurrency, the underlying value of the fund. Importantly, investors have the right to sell these shares on the public markets after the end of a lock up period.
  2. Retail investors can only access GBTC and ETHE shares through the public markets where individual shares are traded, almost always premium because of the high demand and limited supply of these cryptocurrecny shares.
Source: Yahoo Markets. GBTC’s premium is currently close to 20% above BTC, and has reached 120% in 2017, while ETHE’s premium is close to 840% higher than the spot price of ETH at the time of writing.

So how do funds profit off Grayscale’s GBTC and ETHC premium?

Source: 21 Shares
Grayscale deposits in-kind (in cryptocurrency) VS in cash (dollars). Source: 21 Shares

Kangaroo market update

It’s good time to revisit the traditional markets, which as some noted, seems to be reminiscent of cryptocurrencies in 2017. “Life is all about the impossible becoming reality” describes the rise of Bitcoin and cryptocurrencies from 0 to a $260 billion market, and unfortunately might pertain not just to perceived market insanity, but also to inflation and social instability.

Left: Real GDP growth per capita VS real median household income 1975–2009. Right: Household debt VS Savings 1953–2008. Source: Seeking Alpha
Total US debt VS economic activity. Source: FRED
According to ShadowStats website, if inflation was calculated using the same formula since 1980, inflation would be closer to 10% annually.


  1. Speculate on the BitMEX funding rate: Delta Exchange launches the first cryptocurrency interest rate swap
  2. Lebanon suffers currency chaos, protestors break into central bank



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Efficient Frontier

Efficient Frontier


Leading research & algorithmic trading firm for the cryptocurrency markets efrontier.io