A Crypto Trade That Shook the Industry
In the world of cryptocurrency, one trade in 2021, known as the ‘widowmaker trade,’ had a significant impact on many crypto veterans and entities like Three Arrows Capital, Blockfi, and FTX. David Choi, an angel investor and former crypto fund manager, shared his personal experience with this trade, providing an insider’s account of the events.
The Trade Involving Grayscale’s Crypto Trust Products
The trade revolved around Grayscale’s crypto trust products, which often traded at a premium due to their unique structure and the difficulties investors faced in accessing cryptocurrencies, including bitcoin (BTC) and ethereum (ETH) at the time. The value of the Grayscale trust shares was frequently higher than the underlying crypto assets.
A Lucrative Opportunity
This premium presented an opportunity to buy BTC, contribute it to Grayscale, receive GBTC shares after a lock-up period, and sell them in the equities market at a premium. The trade seemed foolproof, as the premium of GBTC shares had never been negative before.
The Shift and Mounting Stress
However, the landscape changed dramatically, and the premium turned into a discount, leading to mounting stress for Choi and others involved. Choi shares the frantic efforts made to manage the damage and the analysis of correlations between Nasdaq and ethereum.
Exiting the Trade
When their shares were unlocked, Choi’s fund opted to sell off the shares to minimize losses, in contrast to those who chose to hold in hopes of a rebound. Choi’s fund ultimately experienced a net loss of -38%, which he considers fortunate compared to others who suffered catastrophic losses exceeding -1000%.
Connecting to the Present
Choi’s thread also draws connections to the current market situation, suggesting that the market dumping seen after ETF approvals may be related to shares that were locked up years ago. He notes that the market is gradually absorbing this “toxic baggage” from the 2020-2021 cycle.
Hot Take: Reflecting on the Widowmaker Trade
The widowmaker trade had a significant impact on the crypto industry, causing unexpected losses for many experienced individuals and organizations. David Choi’s personal account provides valuable insights into the trade and its consequences. It serves as a cautionary tale, reminding crypto enthusiasts of the risks associated with seemingly lucrative opportunities and the importance of adapting to a rapidly changing market.
By
By
By
By
By