The Grayscale Bitcoin Trust (GBTC) is currently the largest listed cryptocurrency asset with $ 30.17 billion in assets under management. The company currently owns more than 655,730 BTC and can trade its securities in the OTC markets.
How is GBTC different from Bitcoin ETF?
The fund was launched in 2013 and the Grayscale Bitcoin Trust has become the preferred institutional arrangement in the US for BTC due to the lack of a Bitcoin Exchange Trading Fund (ETF).
Mutual funds are regulated by the Office of the United States Comptroller (OCC) and are only intended for approved investors. However, it can be sold to retailers after its six-month closing period.
This specification forces GBTC shares to trade above the BTC equivalent held by confidence when there is a retail demand in the secondary markets. Meanwhile, institutional clients can purchase at the level directly from Grayscale Investments regardless of price in the OTC markets.
As explained above, this premium has sometimes exceeded 40%, indicating strong buying pressure from retail investors. That changed in the past four weeks when Bitcoin’s price peaked at $ 58,000 and triggered a major correction that brought GBTC’s premium to range from 5% to 10%.
Decreased appetite in the secondary markets is leading to a potential imbalance as there is currently no GBTC buyout program. If there was a way to convert it back into BTC, the market maker would want to buy the trust stock at a discount.
While the recent drop in price may explain the 7% discount on February 26th, Bitcoin has previously undergone several 30% adjustments with no apparent impact on GBTC’s premium. Even during the dire market downturn in late 2018, GBTC was trading above its Net Asset Value (NAV).
A new competitor appears
While no better alternative has ever been proposed, the Canadian company TSX ETF launched Bitcoin on February 18, giving investors direct access to BTC. This structure allows the market product to create and buy back shares thus minimizing any premium or discount to net worth.
This time the selling pressure caused less buying activity from non-accredited investors. On the other hand, the Canadian ETF exceeded the target 10,000 BTC under management in one week, indicating the instrument’s success despite the sharp fall in the price of BTC.
Unless Grayscale Investments opens the redemption program, there is nothing stopping GBTC from continuing to trade in net assets.