In the US stock market, closed-end funds related to blockchain, such as gbtc and ethe, have underlying assets of btc and eth. Before the approval of btc's etf trading, the trading price of these funds in the secondary market was once at a significant discount relative to the net asset value of the underlying assets. For example, gbtc had a discount of 43% relative to the asset net value at the end of 2022, which means that $57 could buy assets worth $100.

This 43% discount will also disappear completely after the etf officially trades in January 2024. The price of BTC increased by about 150% (2.5 times) from the end of 2022 to January 15, 2024, while GBTC increased by about 340% (4.4 times) during the same period due to the disappearance of the discount.

Why did the market have such ridiculous price discounts at the time? My guess:

First, everyone is pessimistic about the future value of underlying assets.

Secondly, many people who originally bought assets at high prices now, due to various pressures, must sell them immediately, and no longer care about cutting loss like this.

Third, although a 43% discount sounds significant, and it seems that the ETF will eventually be approved, it may be three or four years later, and I can't wait that long. If we calmly calculate, assuming that the 43% discount will disappear within four years, then we will earn an additional average return of nearly 11% per year, even after deducting the 2.5% annual management fee, there will still be an additional 8.5% return per year. This performance is a tantalizing figure for many traditional funds.

But these people's thoughts are like: 'I get furious even waiting for five seconds at a traffic light. It's unreasonable to make me wait for another three or four years for something uncertain!'

Even in mid-October 23, when the SEC decided not to appeal the court's urging to approve the ETF's ruling, the discount still stood at 15% despite a 90% probability that the ETF would be approved in January 24. Sellers in the market can't wait even for four months.

Fourth, it is precisely because the secondary market gives these impatient people the option to sell assets at a low price, and in the short term, those who sell late will lose more than those who sell early. Selling early seems wiser, so it will form a positive feedback loop of 'everyone rushing to sell cheap assets earlier and earlier, the lower the price, the more panicked the selling,' until those impatient sellers completely exhaust their chips.

The opposite of irrational huge price discounts is irrational huge premiums. A typical example in today's market is a closed-end fund with underlying assets of Solana, with the code GSOL, a net asset value of $53 and a market price of $370, with a premium of nearly six times. What kind of stupid idiots are the buyers who are willing to pay such a high premium? It can only be explained that the buyers are not spending their own money.

From this perspective, when liquidity is hindered and not smooth, the prices in the secondary market often reflect the least patient buyers who cannot wait even for a few seconds, or the prices that sellers are willing to accept. It often deviates greatly from the true value. This provides a huge return for those who are willing to sit down and think calmly, and are willing to wait for at least three to four years, offering opportunities that are very boring in the short term but very easy in the long term operation.

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