Grayscale Bitcoin Trust (GBTC) from Grayscale Investments has been under pressure for the past two weeks as it traded below its Bitcoin equivalent per share. The instrument is traded on OTC markets and is by far the largest listed cryptocurrency basket.
From time to time, GBTC temporary closure offers are temporarily closed, along with similar products offered by Grayscale Investment, such as the Ethereum Fund. As of March 7, GBTC and the Digital Large Cap Fund (GDLC) have these periods.
The fact that one of the few Bitcoin investment cars (BTC) has been closed temporarily, along with the break period, seems a bit strange, as GBTC received a record discount of 15% on BTC equivalent per share on 5 March.
GBTC shares are used to trade more than the fund’s BTC equivalent due to excessive demand from retail. However, institutional customers could buy shares directly from Grayscale.
This volatility in demand creates an opportunity for arbitrage, as customers can equally buy directly from Grayscale Investments, hold their shares for six months and then sell them in secondary markets at an attached premium.
This strategy has yielded good results, with GBTC markings on similar BTC content ranging from 5% to 40%. It should be noted that excess demand in secondary markets has caused this imbalance, as non-accredited investors cannot gain direct access to Grayscale offers.
On February 27, the situation suddenly changed when the GBTC premium became a discount. At the time, the lending wing BlockFi cryptocurrency and the arbitration agency Three Arrows Capital owned more than 5% of the issued shares in accordance with the disclosure requirements under US SEC rules.
This means that if any of the above persons vacate a significant position, their relocation will be announced. No matter who was behind the sudden sales pressure, it is important to understand why this is the case.
Canadian Bitcoin ETF made better product
The recent approval of two Bitcoin ETFs in Canada was without a doubt one of the key factors influencing the GBTC premium. Target Bitcoin ETFs received an impressive 11,446 BTC ($ 584 million) in less than two weeks. Although this amount seems small compared to GBTC of $ 31.2 billion, the ETF offers the best risk / return, as reported by Cointelegraph.
This is because the ETF’s target fee is 1% compared to 2% charged by GBTC. Furthermore, there is no blocking period, and individual investors may have direct access to buy Purpose Bitcoin ETF shares on equal terms. Thus, the emergence of the best investment car Bitcoin has caught GBTC’s attention before.
More and more GBTC stocks are opening up
36,000 BTC, equivalent to 36,000 BTC in GBTC shares issued in August 2020, closed in six months in February.
This increase in “unlocked” GBTC is $ 2 billion at the current price of 56,800 BTC and is likely to increase the pressure on GBTC shares. This potential effect is significant, although most of the volume closes the arbitrage preference position by buying a BTC futures contract when selling GBTC shares.
While BTC futures are liquid to absorb this volume, GBTC shares may face a drop in retail demand due to the impact on ETFs discussed earlier, not to mention the negative sentiment that followed the BTC peak on 21 February at $ 58,300. reduced by 26%.
However, the 15% GBTC discount seen on 5 March for the BTC equivalent does not seem acceptable. Although the market maker does not currently have the option to buy these shares and convert them back to BTC, Grayscale Investments can buy them and take advantage of the difference.
At the moment, GBTC holders are unlikely to fear a sale in this unusual situation. On the other hand, those who expect a premium of 5% or higher for a rebound will probably be disappointed, as the Canadian ETF seems to be the best product for retail investors.