Grayscale Bitcoin Trust ($ GBTC) is currently the largest cryptocurrency asset listed, with $ 30.17 billion in assets under management. The company currently has 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 has become the preferred institutional vehicle in the U.S. for BTC due to the lack of a Bitcoin exchange traded fund (ETF).
Investment trust funds are regulated by the United States Currency Controlling Office (OCC) and are designed exclusively for accredited investors. However, they can be sold to retail merchants after a six-month blackout period.
This specificity means that GBTC shares are traded above the equivalent BTC held by the trust whenever there is retail demand in secondary markets. In the meantime, institutional customers can purchase at face value directly from Grayscale Investments, regardless of price in over-the-counter markets.
As shown above, this premium sometimes exceeded 40%, indicating strong buying pressure from investors. The situation has changed in the past four weeks when Bitcoin’s price peaked at $ 58,000 and initiated a substantial correction, causing the GBTC premium to be between 5% and 10%.
Decreased appetite in secondary markets creates a potential imbalance, as there is currently no bailout program for GBTC. If there was a way to convert it back to BTC, a market maker would happily buy the shares of the trust at a discount.
While the recent price drop could explain the 7% discount seen on February 26, Bitcoin has faced several 30% corrections in the past, with no apparent impact on the GBTC premium. Even during the horrible bear market in late 2018, the GBTC was trading above the net asset value (NAV).
A new challenger appears
While no better alternative has been offered previously, Canadian TSX launched a Bitcoin ETF on February 18, giving investors direct exposure to BTC. This structure allows the market maker to create and redeem shares, minimizing any premium or discount to the net asset value.
This time, the selling pressure that occurred encountered less buying activity from non-accredited investors. On the other hand, the Canadian Purpose Investments ETF exceeded 10,000 BTC under management in one week, which signals the success of the instrument, despite a sharp drop in the price of BTC.
Unless Grayscale Investments opens a redemption program, nothing prevents GBTC from continuing to trade below its net asset value.
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