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Bitcoin traders who could be nursing losses of over 87%

Hong Kong

LOSING money as everything from stocks to oil and corporate bonds tumble? It could be worse.

To see what may be one of the most poorly timed trades of the past year, take a look at the US$1 billion Grayscale Bitcoin Investment Trust.

On Dec 18, 2017, the day before bitcoin's epic crash began, buyers propelled the trust's premium over net asset value to more than 100 per cent. In rough terms, it was like shelling out US$40,000 for a bitcoin that was trading near US$20,000 on spot markets.

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The markup was largely a result of scarcity value. Buying the trust was one of the few ways for regulated US institutional investors to gain exposure to cryptocurrencies, and some were willing to pay for the privilege on expectations that crypto-mania was just getting started.

Of course, we now know it hasn't turned out that way. As bitcoin tumbles towards US$4,000 and the Grayscale trust's premium shrinks, the bullish Dec 18 bets are looking worse by the day. While it's unclear how long buyers held on to their positions, anyone who stuck with the trade would be nursing losses of more than 87 per cent.

One warning to bargain hunters: Even after its tumble, the bitcoin trust isn't exactly cheap. Its premium to net assets is still more than 9 per cent. BLOOMBERG