Grayscale Bitcoin Trust ($ GBTC) is currently the largest listed cryptocurrency asset with $ 30.17 billion in assets under management. The firm currently owns more than 655,730 BTC and the security is tradable in the United States through non-counter markets.
How is GBTC different from a Bitcoin ETF?
The fund was launched in 2013 and the Grayscale Bitcoin Trust became the preferred institutional vehicle in the US for BTC due to the lack of a Bitcoin exchange traded fund (ETF).
Investment trust funds are regulated by the US Office of Currency Controllers (OCC) and are designed exclusively for accredited investors. It can nevertheless be sold to retailers after a six-month lock-in period.
This specificity causes GBTC shares to trade above the equivalent BTC that the trust owns, when there is retail demand in secondary markets. Meanwhile, institutional clients can buy directly from Grayscale Investments, regardless of the price on OTC markets.
As indicated above, such a premium sometimes exceeded 40%, indicating a large buying pressure from retail investors. The situation has changed over the past four weeks as the Bitcoin price reached a high of $ 58,000 and started a significant correction, causing the premium of GBTC to fluctuate between 5% and 10%.
A reduced appetite in the secondary markets creates a potential imbalance, as there is currently no redemption program for the GBTC. If there was a way to convert it back to BTC, a market maker would like to buy the trust shares at a discount.
Although the recent price crash may explain the 7% discount seen on February 26, Bitcoin has faced 30% corrections in the past, without having a significant impact on the GBTC premium. Even during the horrific bear market in late 2018, GBTC traded above the net asset value (NAV).
A new challenger appears
Although no better alternative has been offered before, the Canadian TSX launched a Bitcoin ETF on February 18, offering investors direct exposure to BTC. This structure enables the market maker to create and redeem shares, thereby reducing the ultimate premium or discount on the net asset value.
This time, the selling pressure that took place found 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, indicating the success of the instrument despite a sharp decline in the BTC price.
Unless Grayscale Investments opens a redemption program, GBTC can not prevent anything from trading below its net asset value.
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