Grayscale Investments’ GBTC may be the absolute market leader but it is currently trading under fair value because the TSX Goal Bitcoin ETF is visiting record inflows.
Grayscale Bitcoin Trust ($GBTC) is currently the largest listed cryptocurrency asset with $30.17 billion in funds under management. The company currently holds over 655,730 BTC and the safety is tradable in the United States through over-the-counter markets.
What’s GBTC distinct from a Bitcoin ETF?
The fund was launched in 2013 and the Grayscale Bitcoin Trust became the favored institutional vehicle in the U.S. to get BTC on account of the lack of a Bitcoin exchange-traded fund (ETF).
Investment trust funds are governed by the U.S. Office of the Comptroller of the Currency (OCC) and they’re designed exclusively for licensed traders. But those can be offered to retail traders following a six-month lock-up period.
This specificity causes GBTC stocks to trade over the equivalent BTC held by the trust whenever there’s retail demand on secondary markets. Meanwhile, institutional customers can purchase at par straight from Grayscale Investments whatever the price on OTC markets.
As shown above, such a premium sometimes surpassed 40%, indicating heavy buying pressure from retail investors. The problem changed over the previous four weeks as Bitcoin price appeared at $58,000 and initiated a significant correction, causing the GBTC premium to range between 5% and 10 percent.
A diminished appetite in the secondary markets produces a potential imbalance as there’s presently no redemption program for the GBTC. Had there been a way to convert it back to BTC, a market maker would happily get the trust stocks at a discount.
Although the recent price crash might explain the 7% reduction seen on Feb. 26, Bitcoin faced multiple 30% corrections previously with no apparent effect on 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 choice was previously offered, Canada’s TSX launched a Bitcoin ETF on Feb. 18, supplying investors direct exposure to BTC. This arrangement allows the market to create and redeem shares, thus reducing eventual discount or premium to the net asset value.
This time around, the selling pressure that happened found less purchasing activity from non-accredited investors. On the other hand, the Canadian Target Investments ETF surpassed 10,000 BTC under management in one week, which indicates the device’s success despite a sharp recession in BTC price.
Until Grayscale Investments opens a salvation program, nothing is preventing GBTC from continuing to trade below its net asset value.