Grayscale Bitcoin Trust (GBTC) is currently the largest publicly traded cryptocurrency asset with $ 30.17 billion in assets under management. The company currently holds more than 655,730 BTC and the security is tradable in the United States through over-the-counter markets.
How is GBTC different from a Bitcoin ETF?
The fund was launched in 2013 and the Grayscale Bitcoin Trust became the preferred institutional tool in the US for BTC due to the lack of an exchange traded Bitcoin fund (ETF).
Investment Trust Funds are regulated by the US Office of the Comptroller of the Currency (OCC) and are intended for accredited investors only. However, these can be sold to retailers after a six month lock-up period.
This peculiarity causes GBTC shares to trade above the BTC equivalent held by the trust with any retail demand in secondary markets. Meanwhile, institutional clients can buy direct from Grayscale Investments at face value regardless of the price in the OTC markets.
Grayscale GBTC Bitcoin Trust Premium (blue) vs. marker price (green). Source: Bybt.com
As shown above, such a premium was sometimes over 40%, which indicates strong buying pressure from investors. The situation has changed in the past four weeks when Bitcoin price peaked at $ 58,000 and initiated a significant correction, leaving the GBTC premium between 5% and 10%.
Decreased appetite in the secondary markets creates a possible imbalance as there is currently no repayment program for the GBTC. Had there been a way to convert it back to BTC, a market maker would be happy to buy the trust shares at a discount.
Grayscale GBTC Bitcoin Trust Premium to BTC. Source: YCharts.com
Although the recent drop in prices could explain the 7% discount posted on February 26, Bitcoin has suffered several 30% corrections in the past without affecting the GBTC premium. Even during the terrible bear market in late 2018, GBTC was trading above net asset value (NAV).
A new challenger appears
Although no better alternative has yet been offered, on February 18, the Canadian TSX launched a Bitcoin ETF that allows investors to get direct exposure to BTC. This structure enables the market maker to create and redeem stocks, minimizing any premiums or discounts on the net asset value.
This time the selling pressure found less buying activity from non-accredited investors. On the other hand, the Canadian Purpose Investments ETF exceeded 10,000 managed BTC in one week, signaling the instrument’s success despite a sharp drop in BTC price.
Unless Grayscale Investments initiates a redemption program, nothing will prevent GBTC from continuing to trade below its Net Asset Value.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.
