Because the GBTC is a trust product trading on the OTCQX marketplace, and newly-created shares take six months to mature

Now many of you will be reading critical takes on Bitcoin’s current rally from people insistent that stablecoins like Tether are somehow responsible for its price. I would invite you to ask these critics if they are active participants in crypto markets. If not, you can safely disregard their opinions. It is only individuals with experience creating and redeeming stablecoins, and experience allocating capital in the cryptoasset space, that should be considered credible sources on this issue. Otherwise it is quite simply too difficult to understand the dynamics at play.,The immense growth of GBTC in 2020 is evidence that there is a class of allocators who are content to obtain inefficient exposure to Bitcoin. Buyers of GBTC are not your typical techie crypto investors, who are more likely to make an account with one of the crypto exchanges and take ownership of spot Bitcoin (and avoid a costly premium). The continued growth of GBTC is evidence that an older and less crypto-native cohort of investors retains a significant appetite for the asset, even if the exposure is inefficient.,Another critical piece of financial market infrastructure which has been underappreciated has been banks like Silvergate which service the industry. In 2017, and even more so during the primordial era of the crypto industry, bank relationships were extremely hard to come by, and only the largest and most credible crypto corporations could acquire banking. Today, a number of banks in the US actively service crypto businesses: chiefly among them, Silvergate, Signature, and Metropolitan. Additionally, two new entities — Avanti Bank and Kraken Financial — have received charters under Wyoming’s Special Purpose Depository Institution legislation, meaning that they are eligible to get access to the Federal Reserve (while also managing cryptocurrency assets on behalf of clients).,Another underappreciated story is the wide availability of crypto-native credit today. As with some of the other phenomena mentioned here, professional intermediation in the lending space simply didn’t exist in late 2017 — although certain p2p credit markets existed, for example on Bitfinex. What credit permits is capital efficiency for market makers, arbitrage firms, and hedge funds active in liquid markets. The fragmented liquidity environment in the crypto industry means that these firms must lock up liquidity on a number of exchanges simultaneously. This can make certain strategies very costly from a capital perspective, which is where credit providers like Genesis and BlockFi come in. The insertion of credit onto blockchains has the practical effect rendering spreads tighter and inter-exchange price dislocations less common. Additionally, any business with Bitcoin or stablecoin-denominated expenditures — like Bitcoin ATM companies — can benefit from the convenience of credit.,The dataset I was working with was tiny. All-in-all, there are about 600 unique images; add the shinies (glorified palette-swaps) and occasional female variants (minor changes most people wouldn’t notice) and you’ve got about 1600 images. That’s way too few to properly train a GAN to produce 96x96x3 images. Still, I tried, and applied augmentation to artificially increase the dataset size. This included:,In the third quarter of 2020, the SEN processed $36B in transfers. These sorts of financial infrastructure products, while not typically understood as critical to Bitcoin, enable the efficient clearing and settlement of fiat funds between crypto firms in the U.S. This is yet another product that simply did not exist in 2017.,At the previous Bitcoin ATH, only $1.5B worth of stablecoins existed. Today that number stands at $22.7B. Stablecoins have created a pool of stable-value liquidity which is not exposed to volatility. Interestingly, while many exchange venues have become “Tetherized” — as in, USDT is the main trading pair and settlement asset, displacing Bitcoin’s former role in this function, Bitcoin’s price remains robust. This is testament to Bitcoin’s evolution as a product, from a reserve asset for exchanges — exposed to trader willingness to trade long tail assets on exchanges — to an independent monetary asset in its own right, beloved of hedge fund managers and commodities traders.,Lastly, capital existing in tokenized fiat format tends to enter the crypto industry but not leave. This is because crypto rails are fundamentally more convenient, more globalized, and less encumbered than traditional payment and settlement rails. Thus a material portion of the $22.7B worth of of tokenized USD circulating on public blockchains represents dry powder that could well be allocated to risk assets like Bitcoin. If there is a run on any of these stablecoins, or their backing comes into question, the natural direction to flee will be in the direction of censor-resistant assets like Bitcoin which can absorb that much liquidity at short notice. Presumably, if a stablecoin suspends convertibility, holders will not be able to conveniently exit at fiat off-ramps — but they will be able to flee into the blue chip cryptoassets, of which Bitcoin is by far the largest and the most liquid. Thus if stablecoins do face adverse outcomes, the result is most likely a significant capital inflow into Bitcoin.,The truth is that the creation of Tether and other stablecoins (the supply of non-Tether stablecoins is over $5B today) should be understood not as purchases or capital inflows, but simply like-for-like asset swaps. Stablecoins are created when an entity with fiat on their balance sheet wants access to crypto-native liquidity. They merely exchange commercial bank dollars for a tokenized representation of the same. Firms that denominate their balance sheets in stablecoins or hold stablecoins as working capital include market makers, proprietary trading firms, exchanges, venture capital firms, and generally speaking any businesses operating in the crypto industry with crypto-denominated expenditures. After the panic in mid-March 2020, a number of firms transformed their balance sheets from commercial bank dollars to tokenized dollars circulating on public blockchains, so that they could be more nimble the next time an opportunity like that arose.,Despite this, the growth in stablecoins is positive for Bitcoin, not because of the conspiracies around unbacked issuance, but simply because it means that the liquidity environment is vastly improved.,And empirical reality bears this out too: from February 2018 to July 2019, Bitcoin was effectively flat (it started and ended the period at $11k), while the supply of stablecoins increased from $2.3B to $11.5B. If the creation of stablecoins somehow buoyed the price of Bitcoin, why was its price unchanged as the supply of stablecoins increased by 400 percent? The critics fixated on Tether have no answer for this question.,A number of trading firms borrow Bitcoin, create new units of GBTC at NAV, wait six months for them to mature, and then liquidate them at market price, pocketing the premium (minus the interest on the loan). Despite this continual slow-motion arbitrage, the premium has lingered for virtually the entire history of GBTC. The lingering premium to NAV is evidence for a continual enthusiasm for the product among investors. GBTC is popular because it is available on mainstream brokerages like Fidelity and Schwab and can be held in a tax-advantaged way, in an IRA or 401k.,And indeed, much of this critical analysis relies on a since-debunked paper by Griffin and Shams that relies on a narrow sample period and questionable methodology to allege a relationship between the issuance of Tether and the BTC unit price in 2017. More recent scholarship, including Viswanath-Natraj and Lyons, using a broader sample period, has found no causal leading relationship between Tether issuance and the Bitcoin price. Additional work from Wang Chun Wei confirms the lack of a correlation between Tether creation and Bitcoin returns.,Put simply, the bank environment, long a critical challenge for crypto businesses in the U.S., is vastly ameliorated today as compared with three years ago during the last bull run. By virtue of its publicly-traded status, Silvergate’s impressive traction is semi-transparent. One of their flagship products in their intra-bank settlement product, the Silvergate Exchange Network (SEN). The SEN enables clients of Silvergate to settle with each other Since they bank so many crypto businesses, transactions on the SEN are a proxy of sorts for the vibrancy of U.S. domiciled firms in the industry.,The fact that Bitcoin has nearly completely recovered its prior highs in market cap while stablecoins have taken its mantle as reserve assets for the crypto industry suggests that it has taken on a life of its own