This morning Pfizer gave the world an update on their vaccine candidate, with more details about efficacy across age groups. The vaccine efficacy is now estimated at 95%, and Pfizer expects to submit a request to the FDA for an emergency use authorization (EUA) within days. The company plans to produce 50 million doses by the end of the year. This news has helped to keep equity markets afloat, even as covid cases continue to surge. Meanwhile, equity volatility continues to come down, with the VIX trending closer and closer to 20, its lowest level since February.

In crypto world, BTC traded over $18,000 overnight, but has since pulled back just below that psychological barrier. Chartists and technical analysts are comparing the price action to 2017 and many are calling for a pull back, but I personally don’t put much credence in the idea of looking at charts from the past and assuming that they will repeat in the future. Daily inflows into Grayscale’s GBTC are reaching an unprecedented level, but it is hard to say how much of that new investment is coming from actual new money inflows into the product, or how much is from sophisticated hedge funds executing a complicated arbitrage (“arb”) trade. In an arb trade a hedge fund could borrow BTC from retail holders, paying them a reasonable interest rate to take control of the coins, then handing the borrowed coins over to a firm like Grayscale, receiving restricted shares in return. The arb is completed in 6 months time, when the hedge fund’s new shares become unrestricted and they can sell them on the open market, using the proceeds to purchase BTC and returning the purchased BTC to the retail clients they originally borrowed from. The trade makes money for the hedge fund as long as the premium that GBTC is trading to NAV at the end of the trade exceeds the cost of the financing they incurred during the life of the trade.

It’s a good trade, and there is a lot of reason to believe that it will be successful. But it does cloud the picture about how much money is flowing in to BTC, as any Grayscale inflows that are part of an arb trade like this are not truly inflows, as the hedge fund executing the trade is not actually taking directional BTC risk (they are only taking risk on the GBTC premium over NAV).

That being said, I think that money inflows in to BTC are still strong and (maybe more importantly) sticky. I would just caution against looking at GBTC inflows as a proxy for the magnitude of new investment.

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