Only a couple of days after GBTC traded at a 15% discount to its BTC equal, Grayscale Investments has temporarily closed the trust to investors.
Grayscale Investments’ Grayscale Bitcoin Trust (GBTC) was below the heat for the last couple of weeks as it traded under the Bitcoin equivalent for every share.
Gradually, the private-placement offers for GBTC stocks are temporarily closed, together with similar products provided by Grayscale Investment such as its Ethereum trust.
The fact that one of the sole investment vehicles containing Bitcoin (BTC) has temporarily closed its issuance, along with the timing of this pause, seems somewhat odd, as GBTC attained a record-high 15% reduction to the BTC-equivalent for every share on March 5.
GBTC stocks utilized to trade over the equal BTC held by the trust, an effect brought on by the surplus retail demand. Meanwhile, institutional clients could purchase shares directly from Grayscale at level.
This demand uncertainty created an arbitrage opportunity where customers could purchase at par directly from Grayscale Investments, hold their shares for the six-month lock-up period, then offer them on secondary markets using a premium attached.
This approach yielded outstanding results, as the GBTC premium within its BTC equivalent content ranged from 5% to 40 percent. It’s worth noting that excessive demand on secondary markets caused this imbalance, as nonaccredited investors cannot immediately access Grayscale’s personal offers.
On Feb. 27, this situation changed abruptly since the GBTC premium become a discount. At the time, BlockFi’s cryptocurrency lending wing along with the Three Arrows Capital arbitrage desk held over 5% of their outstanding shares, based on disclosures required by U.S. Securities and Exchange Commission rules.
This means that if either one of the above liquidates a significant position, their move is going to be made public. Regardless of who was behind the abrupt selling pressure, it’s crucial that you understand what might have caused it.
Canada’s Bitcoin ETF presented a better product
The recent approval of two Bitcoin exchange-traded-funds in Canada is likely among the most significant contributing factors that impacted the GBTC premium. Although this sum seems insignificant alongside GBTC’s $31.2 billion, that the ETF provides a far better risk/reward, also as reported by Cointelegraph.
This is because the Purpose ETF fees are 1% versus the 2 percent payable by GBTC. Moreover, there is no lock-up interval, and retail investors can achieve direct accessibility to buy Target Bitcoin ETF shares at par. Therefore, the emergence of a better Bitcoin investment vehicle seized much of charm which GBTC formerly owned.
An increasing number of GBTC stocks are being unlocked
The 36,000 BTC equivalent of GBTC stocks issued in August 2020 completed its six-month lock-up in February.
This growth in”unlocked” GBTC represents $2 billion at the present $56,800 BTC price and potentially adds pressure to the GBTC stocks. This possible impact is relevant even though most of the volume is closing a premium arbitrage transaction by buying a BTC futures contract whilst promoting the GBTC shares.
Though BTC futures are liquid sufficient to absorb this quantity, GBTC shares could see reduced retail need because of the previously discussed ETF impact — and of course the negative sentiment that followed following BTC hit on the $58,300 top on Feb. 21, and then dropped by 26 percent.
However, the 15 percent GBTC discount seen on March 5 versus its BTC equivalent does not look sustainable. Even if there’s now no way for a market maker to purchase those stocks and convert them back into BTC, Grayscale Investments could buy them back and profit from the difference.
As things currently stand, GBTC holders are not likely to panic sell in this odd circumstance. On the flip side, those waiting to get a 5 percent or higher superior to reemerge will probably be disappointed, since the Canadian ETF appears a much better product for retail dealers.