Messari Daily Brief Feb. 24, 2021: No Brainer Long/Shorts

I’m not saying these are no-brainers for me, or for you. But the convergence of stonks and crypto is likely to create some interesting, juicy looking long/short plays that “sophisticated” investors can tackle without necessarily taking “long bitcoin” exposure.

There’s the basis trade, and the Grayscale trade, but there’s also the “crypto company” trade. That is, any traditional exchange-traded security that appears to trade at a premium vs. the underlying spot crypto market might be a short target to pair with an undervalued spot long. That has and will likely continue to bring more institutional investors into the space.

Historically, you wouldn’t necessarily want to short GBTC or ETHE or BITW just because they trade at a premium to their underlying net asset values. Those quasi-ETFs are violently volatile, and there’a a better way to play the premium arbitrage game with them: simply by doing a private creation of new (borrowed) shares and waiting to sell the securities after a restricted period in order to collect the premium. It’s unclear how long this trade will last, anyway, as the premium is getting closer to flipping to a discount for the first time since 2015.

The other way to look at this might be crypto *companies* whose valuations and/or revenues are tied to crypto’s price performance and volatility, and whether they are overvalued vs. the spot market. The sample size is too small for this to matter as a meaningful trading strategy right now. MicroStrategy offers a glimpse of what might be possible in the future, though.

Last July, MSTR had a valuation of ~$1 billion. Since then, they raised $2 billion to acquire bitcoin for the company balance sheet. That bitcoin is now worth $4.5 billion, while MSTR's valuation has soared to $6.6 billion. That means the non-bitcoin equity value of the company is now up $1.7 billion or 170% from its pre-bitcoin status.

Did MSTR magically become that much more valuable, or is its stock the new 35% GBTC premium?

Headlines that matter:

• INTEL: Kava, Solana, BNB, Filecoin, Stacks, Ethereum (+ 20 updates)
• Uniswap: guesses on v3 rollout (The Block)
• Brave is building an in-browser DEX aggregator (Decrypt)
• Square reports $4.57 billion in 2020 bitcoin sales (The Block)
• Multicoin announces large position in RUNE (Multicoin)
• How Coinbase is worth $100 billion (CoinDesk)
• MicroStrategy adds $1 billion of BTC to balance sheet (The Block)
• There was $115 million in DeFi lending liquidations yesterday (CoinDesk)
• Alameda, CMS, Genesis invest $40 million into Swiss DeFi brokerage Oxygen (The Block)
• Daily Shade: ETH on pace to clear $1.6 trillion in transactions -Watkins