Institutions increase exposure to Grayscale Bitcoin Trust as GBTC discount nears 30%

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Institutional investors are returning to collect Grayscale Bitcoin Trust (GBTC) stock as a discount to price it up nearly 30% to, data from Glassnode shows.

Since December 2021, in some weekly sessions, investors have invested between $10 million and $120 million in Grayscale’s core fund. Meanwhile, the largest capital inflow — nearly $140 million — came in the week ending Feb. 25, as shown in the chart below.

Institutional investment in grayscale from September 2021. Source: glassnode
No sales yet among known GBTC supporters
GBTC Trust has raised investment as global markets have been hit by turmoil in recent months, including a massive sell-off of tech stocks followed by Russia’s invasion of Ukraine, leaving many fund managers in double-digit losses.

For example, the ARK Next Generation (ARKW) ETF by Kathy Woods, who owns $478 million in GBTC, has collapsed nearly 45% year-over-year, largely due to the impact on sectors that have been hardest hit during recent market turmoil. . , including technology (43.14%) and communications (27.99%).

ARKW weekly price chart. Source: Trading View
But in November 2021, ARKW added over 450,000 GBTC shares to its portfolio as discounts were nearly 17.5% higher.

Similarly, the Morgan Stanley Insight Fund (CPODX) had over 1.5 million GBTC as of September 30, 2021, according to data it submitted to the US Securities and Exchange Commission (SEC). Its annual performance as of March 6, 2022 is about 43%.

Both ARKW and CPODX have performed worse as GBTC has fallen 43% over the past 12 months. However, neither ARKW nor CPODX announced the sale of significant stakes in GBTC.

Institutional investment in grayscale. Source: Swissblock Technologies, Glassnode
ETF noise?
The poor performance of the GBTC is due to several factors, including increased competition from exchange-traded funds (ETFs) in Canada. Unlike GBTC, ETFs allow investors to buy back shares, a process in which a fund can destroy shares based on supply and demand dynamics.

Grayscale’s parent company, Digital Currency Group, sought to reduce the discount by buying back GBTC shares. But his efforts were further thwarted by the launch of the ProShares Bitcoin Strategy (BITO) ETF, which has futures contracts. This pushed the price of GBTC away from the spot price of bitcoin.

Grayscale Bitcoin Trust discount/surcharge to NAV. Source: YCharts
Grayscale is currently working on a giant discount switch, trying to convert GBTC from a trust fund into an ETF pegged to the price of bitcoin. If the Securities and Exchange Commission (SEC) approves the grayscale, it will require discount company GBTC to reset current discount levels to zero.

However, the Securities and Exchange Commission (SEC) has not approved any bitcoin ETFs that indicate downside risk. In comparison, regulators in Canada and Europe are more receptive to physical investment products backed by Bitcoin.

Investment management firm Investor Trip confirmed that the SEC will eventually approve the spot ETF “due to pressure from outsiders.”

Related: Grayscale Launches Campaign to Encourage Public Comment on Bitcoin ETF Application

“If approved, Grayscale will transfer trust to the Spot ETF and there will be no more rebate opportunity,” she wrote in her analysis published Feb. 14.

Conversely, analysts at the Conservative Income Portfolio call GBTC a “zero denomination” investment, noting that taking it out of NAV Bitcoin is “really inappropriate.”

“This may be relevant in terms of short-term regression as a measure of sentiment.”

Source: CoinTelegraph

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