How a data engineer returned 483% trading on bitcoin’s value inside a triple tax benefit account

• Brandon Frenchak leveraged health savings accounts for tax-free bitcoin trading gains.
• He uses bitcoin’s four-year cycle to time trades, focusing on undervalued bitcoin trusts.
• Frenchak achieved a 482.6% gain in 2024 by trading bitcoin trusts and leveraged ETFs.

The Financial Independence, Retire Early (or FIRE) movement was Brandon Frenchak’s introduction to investing.

He was a few years out of college, looking for ways to make his paycheck go further, when he found Mr. Money Mustache, a personal finance blogger who introduced him to frugality, saving money, and investing in low-cost index funds. It taught the now 37-year-old data engineer that by taking the right steps early, he can sit back and allow his investments to compound over decades.

“I was like, ‘Oh man, this is going to take forever,'” Frenchak said. “I’m married, got a kid, and then I had another one, and now I’ve got five kids. So, I was like, ‘OK, I got to figure out a way to accelerate this’. And so I started learning about value investing.”

While the early lessons in personal finance didn’t sustain his interest, he picked up one key strategy: using tax-advantaged accounts that could further compound his gains and even allow him to keep it all.

Unlike traders who use a brokerage account, Frenchak trades inside a health savings account (HSA). It’s designed to fund medical expenses and has three tax perks: he can make pre-tax contributions, its gains are not subject to capital gains or dividend taxes, and he can later withdraw those gains tax-free for qualified expenses or without penalty after the retirement age of 65

“My wife just had a baby, and I have to pay the hospital, but I’ll wait until the future to actually pull it out and pay myself back,” Frenchak said. In the meantime, he’s paying the medical bills out of pocket, giving himself more time to trade and compound the gains inside the account. Since an HSA account has no time limit, he can withdraw the funds years after he paid the bill and still qualify for tax-free treatment.

Like a traditional brokerage account, an HSA allows investment in multiple types of securities, including stocks, bonds, ETFs, and options. However, if the funds are withdrawn and not used for medical expenses or before the retirement age, a 20% penalty on top of ordinary income tax will be applied. These accounts may also have daily transaction limits or fees depending on the provider.

Becoming a tax-advantaged bitcoin trader

Using his HSA account, Frenchak chose to trade bitcoin-related securities mainly because he understands the asset’s four-year cycle, which follows a strong three-year rally followed by a fourth year where it plunges. He has observed the cycle’s impact on securities tied to bitcoin. Like a sympathy play, when a stock in the sector begins moving, similar securities also move. In this instance, bitcoin tends to impact bitcoin-mining stocks and ETFs or trusts.

In 2024, he mainly stuck with trusts that held at least 70% of their value in bitcoin. He did not trade mining stocks after he noticed that their shares were continually being issued and, as a result, diluted.

Valuing bitcoin trusts differs from valuing a stock because the most important variables are bitcoin’s price, the trust’s share price, and its net asset value, or assets less liabilities.

He uses a manual spreadsheet to track the metrics that help him decide whether a trust is undervalued relative to its holdings. The process is simple: it considers the share price relative to the value of the holdings in the trust to determine the premium. Those with the highest premiums are the positions he takes.

“Basically, you’re kind of arbitraging what the difference is whenever the market is being irrational on it, and it’s a pretty simple metric,” Frenchak said. It also helps you avoid it when it’s irrationally overpriced, like the 2021 bull market when Grayscale Digital Large Cap Fund (GDLC) traded at 50% over its net asset value.

Grayscale

He traded bitcoin trusts during the 2021 US Investing Championship, an annual contest for retail traders run by former math professor Norman Zadeh. But he was in losing territory because he had not paid close attention to the NAV and took up a position in the Grayscale Digital Large Cap Fund (GDLC) when its share price was on par with and sometimes above its holdings, assuming the bull market would continue to push its price higher. But he ended up riding the position down and taking a loss, losing almost the full value.

In 2024, he re-entered the competition, finishing with a 482.6% gain, according to the competition’s founder and documents viewed by Business Insider for the enhanced growth division, which allows trading of futures and options.

An example of one of his successful trades was a swap he made between two BTC trusts. In mid-January, Frenchak saw that the Bitwise 10 Crypto Index Fund’s (BITW) market price had dropped substantially to nearly $15 a share while its NAV was around $35. Meanwhile, GDLC was also trading near $15, but its NAV was $24. He sold his full position in GDLC and moved to BITW, entering at around $15 a share and selling at $21.50 over the span of a few days.

“I went 100% in because it was the most undervalued at that moment,” Frenchak said.

Another big part of his winnings came from Microstrategy (MSTR), though not because its net asset value was higher than its share price. MSTR’s price had a history of surpassing its NAV by more than five times in the previous crypto bull market from 2020 to 2021. Based on that historical precedent, he figured that MSTR’s stock price could again trade at a significant premium to its NAV. He was right: last year, MSTR traded at up to a 200% premium to its NAV. The company (now called Strategy) saw its stock soar 359% in 2024 as it aggressively added to its reserves of bitcoin, which itself more than doubled in price.

Frenchak also traded options and, eventually, leveraged ETFs designed to multiply gains or losses in stocks. He began by buying at-the-money calls on MSTR and was successful early in the year, but lost money when he exited too soon in the second attempt. He then moved on to two leveraged products: the Defiance Daily Target 2x Long MSTR ETF (MSTX) and T-Rex 2X Long MSTR Daily Target ETF (MSTU). Both multiplied what he would have gained by only owning MSTR stock — but they would have amplified his losses if the stock went south.