Grayscale halts GBTC inflow after record 15% discount
Grayscale Investments’ Grayscale Bitcoin Trust (GBTC) has been under pressure in recent weeks, trading below its bitcoin equivalent per share. The instrument is traded on OTC markets and is by far the largest listed cryptocurrency.
From time to time, GBTC private placement offerings are temporarily closed, as are similar products offered by Grayscale Investment, such as. B. The Ethereum Trust. From 7. As of March, both the GBTC and the Large Digital Capital Fund (LDCF) are in this phase.
The fact that one of the few bitcoin-containing investment vehicles (BTC) has temporarily closed its issue, with a pause date, seems a bit odd given that GBTC was launched on the 5th. March reached a record 15% discount on the BTC per share equivalent.
Bitcoin Trust homepage in grayscale. Source: Grayscale
The GBTC shares used for transactions are larger than the BTC equivalent held by the trust, an effect caused by excessive demand from individuals. Meanwhile, institutional clients could buy shares directly from Grayscale at par.
This volatility in demand created an arbitrage opportunity whereby clients could buy at par directly from Grayscale Investments, hold their shares for six months and then sell them in the secondary markets at a fixed premium.
Bitcoin Trust Grayscale Bitcoin Trust Premium for BTC. Source: TradingView
This strategy has been very successful as GBTC’s premium to its BTC equivalent has ranged from 5% to 40%. It should be noted that excessive demand in the secondary markets has caused this imbalance, as non-accredited investors do not have direct access to Grayscale’s private offerings.
The 27th. Things changed dramatically in February when the GBTC bonus turned into a rebate. At the time, BlockFi’s crypto-currency lending wing and arbitrage arm, Three Arrows Capital, owned more than 5 percent of the outstanding shares, according to U.S. Securities and Exchange Commission disclosure requirements.
This means that if any of the above mentioned individuals delete a key position, their removal will be made public. Regardless of who is causing the high sales pressure, it is important to understand what may be causing it.
Canadian bitcoin ETF launched: the bestproduct.
The recent approval of two bitcoin exchange traded funds in Canada is likely one of the most important factors affecting the GBTC premium. In less than two weeks, 11,446 BTC ($584 million) were managed by the targeted bitcoin ETF. While this amount seems insignificant next to GBTC’s $31.2 billion, the ETF offers the best risk/reward ratio, according to Cointelegraph.
This is because the target commission for the ETF is 1%, compared to 2% for the GBTC. Moreover, there is no lock-in period, and retail investors can directly buy shares of the targeted bitcoin ETF at par. The emergence of the best bitcoin investment vehicle has therefore taken over much of the appeal that the GBTC once had.
Increasing number of GBTC shares to be released
A six-month lock-up period for GBTC shares issued in August 2020 with an equivalent value of 36,000 BTC ended in February.
Bitcoin Trust BTC equivalents held in greyscale. Source: Bybt
This increase in released GBTC equates to 2 billion at the current price of 56,800 BTC, which could increase the pressure on GBTC stock. This potential impact is relevant even if the bulk of the volume is conducting premium arbitrage trading by simultaneously buying BTC futures and selling GBTC shares.
While BTC futures are liquid enough to absorb this volume, GBTC stocks could face a drop in retail demand due to the aforementioned ETF effect – not to mention the negative sentiment following the BTC selloff on the 21st. February peaked at $58,300 and then dropped 26%.
Nevertheless, it appears that the decision of 5. GBTC’s 15% discount to the BTC equivalent in March seems unsustainable. While there is currently no way for a market maker to buy back these shares and convert them into BTC, Grayscale Investments can buy them back and profit from the difference.
As things stand, GBTC holders are unlikely to panic and sell in these unusual circumstances. On the other hand, those expecting a premium of 5% or more will likely be disappointed, as the Canadian ETF seems to be the best product for retail investors.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.