How Grayscale Bitcoin Trust at a discount could change everything for BTC

Reynaldo Marquez

4 years ago

3 mins read

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After spending the entire month of March at a loss, the downtrend in Grayscale Bitcoin Trust premium has extended. At the time of publication, the premium stands at -11.45%, near its all-time low at -14%.

Bitcoin BTC Grayscale BTCUSD — GBTC trading at a discount. Source: Ycharts

In contrast, the Canadian Purpose Bitcoin ETF had a nearly month-long streak at record inflow levels begging April. Comparing the data, GBTC at a discount, and the growth in the BTC ETF, there is a trend in investors favoring the latter.

Also the Canada Bitcoin ETF's lifetime inflow streak has now reached 25 DAYS, an unprecedented feat in ETF history. This is my new $JETS. pic.twitter.com/HjB5qmcP9r

— Eric Balchunas (@EricBalchunas) April 2, 2021

Unlike other financial products, GBTC shares cannot be freely traded. They must go through a 6-month “lock-up” period. Although they give exposure to the price of BTC, stakeholders’ strategy to profit is based on the premium, as analyst Ben Lilly points out:

30% return is pretty impressive, and natural economic pressures should bring this premium down to 0%. Yet, for some reason we just haven’t seen that happen yet. That’s because of the way it operates and no other option being available.

If after 6 months, the GBTC premium is high, it can be sold for a large percentage of profits. Otherwise, losses can be just as steep.

Grayscale investors have started to express discontent. Investment firm Marlton issued a press release on April 6, to call for Grayscale to take “immediate action to address GBTC’s significant discount to net asset value” (NAV).

Marlton’s data indicates that GBTC’s premium discount represents an estimated $3.1 billion in losses to stockholders. The firm has called for a modification to the stock trading mechanism that would allow them to sell or buy shares at specific prices and at a specific time.

As Ben Lilly points out, the advent of new options to gain Bitcoin exposure in Canada appears to be hurting GBTC. Researcher Jan Wuestenfeld supports this thesis:

(GBTC) trading at a discount since the beginning of march and their Bitcoin holdings have been stagnating. It looks like with new alternatives coming to the market investors might turn to other products to get exposure to Bitcoin.

High demand for Bitcoin-based regulated financial products

The above indicates a clear demand from institutions looking to acquire exposition to Bitcoin. In parallel, the Security and Exchange Commission (SEC) is under a lot of pressure to approve a Bitcoin ETF. The Commission has received over 6 petitions to approve a Bitcoin ETF in the U.S. in under 4 months.

The discount in the GBTC suggests that investors are favoring products with better trading mechanisms. The performance of Canada’s BTC ETF could create even more pressure for the U.S. regulator.

Senior Commodity Analyst for Bloomberg, Mike McGlone, sees a major inflection point in terms of adoption. New Bitcoin-based financial products could create a new “rising tide” from institutions and individuals investors trying not to “miss out on the potential for Bitcoin”. McGlone claimed:

(…) we see rising potential for 2021 to mark a migration milestone into traditional investment portfolios. Publicly traded cryptocurrency funds’ assets, dominated by Bitcoin, have surged to almost $60 billion as of March 25 from less than $10 billion in October. Growth has been driven by both rising inflows and skyrocketing prices for the funds’ underlying holdings. A U.S. Bitcoin ETF, on the back of recent launches in Canada, would likely accelerate expansion.

BTC is trading at $57,948 and is showing moderate gains in the 24-hour chart at 3.5%. On the 7 day chart, BTC is still moving sideways.

BTC with moderate gains in the 24-hour chart. Source: BTCUSD Tradingview

Reynaldo Marquez

A literature major, Reynaldo Márquez has been deeply immersed in the crypto industry since 2017. His journey began with translating articles for various crypto news outlets, a role he took on with zeal. In 2018, amidst a challenging market, he embraced his first writing assignment, demonstrating his unwavering commitment to the nascent industry and the promise of change it bears for many people worldwide.
In March 2021, he joined the prestigious crypto news outlet NewsBTC and Bitcoinist, where he not only reported on the latest crypto news but also had the privilege of interviewing some of the industry's most influential figures. A year later, his dedication and hard work were recognized, and he was promoted to Managing Editor, a position he currently holds with pride.
He believes in honesty, good communication, hard work, and the power of cryptocurrency and its potential to transform people's lives, especially those alienated by the legacy financial system. Born in 1992 in Venezuela, Reynaldo is familiar with how governments and central banks can negatively affect people, their everyday lives, and their futures by creating inflation and erasing their hopes for a better future. Thus, like many Venezuelans, he embraced this new technology to help him and his family navigate difficult times.
In another life, Reynaldo would have pursued a career as an investigator, most likely tracking down the origins of the Cyberpunk movement with the publication of William Gibson’s ‘Neuromancer.’ The intersection between fiction and reality, with the materialization of Bitcoin in 2009, would have allowed him to dive deep into the crypto sphere as something more than a financial phenomenon but also a cultural shift in society that was brewing since the XX century, and maybe even sooner, in the XIX century with the publication of Henry David Thoreau’s ‘Civil Disobedience.’
But that’s for another life. In this one, Reynaldo has been trading to improve his trading skills. Since 2023, he has been trying to learn Python to create successful strategies and find ways to execute them. It is a difficult task, which continues to keep him busy today and will most likely continue to keep him busy in the near and long term.
In his free time, he enjoys lifting heavy objects, reading, watching movies, and listening to his favorite music. Some of his favorite authors are Walt Whitman, William Faulkner, Allen Ginsberg, James Baldwin, Raymond Carver, Ray Bradbury, George Orwell, Mario Vargas Llosa, Reinaldo Arenas, Rafael Cadenas, and many others. Lately, he has been primarily interested in reading about dystopic societies, a topic that deeply resonates with the crypto industry.
Since 2023, he has lived in Spain with his wife. He loves the weather, the food, and the people and their culture. They both expect to travel much more within the country they now call home and beyond its border. He hopes to retire with his wife, maybe in a quiet place near a beach, but most likely in a city close to a library and a university with his kids and, hopefully, grandkids.

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