The Grayscale Bitcoin Trust free fall shows the extent to which the latest stage of crypto madness in retail is cooling.
Bitcoin’s worst sell-off since December is an especially heavy blow to the largest fund tracking the cryptocurrency.
The $ 29.4 billion grayscale Bitcoin trust (ticker GBTC) has fallen about 20% so far this week, almost double the decline in the world’s largest cryptocurrency. As a result, GBTC closed over 14% below its underlying holdings on Wednesday – a record discount, according to Bloomberg. The relocation has intensified despite plans by Curyscale Investment LLC’s parent company, Digital Currency Group Inc., to acquire GBTC shares valued at up to $ 250 million.
The GBTC’s free fall shows just how much the latest stage of retail crypto madness is cooling. The trust has persistently traded at a premium to its net asset value since its inception, with investors willing to pay for a piece of bitcoin when it skyrocketed. Given that GBTC does not allow redemptions – which means that trust shares can only be created like traditional funds and cannot be destroyed – the number of shares issued has risen to a record 692 million. With the price of Bitcoin now stalling, there is an imbalance between supply and demand as accredited investors in the trust seek to outsource their stakes in the secondary market
“GBTC has a firm offer and is acting like a leveraged game with Bitcoin,” said James Seyffart, an analyst at Bloomberg Intelligence. “If the price goes down, the mood goes down, GBTC will fall further than Bitcoin. The same thing happens on the way up. “
Bitcoin fell to a two-week low for a fifth day on Thursday, its longest losing streak since December. Demand for crypto has fallen as signs are emerging that retailers are pulling out of the markets. From the call option volume to GameStop Inc. shares to the mega-popular exchange-traded Ark Innovation fund (ticker ARKK), everything has stalled.
In addition to the resignation of individual investors, institutional demand could cool with the debut of several Bitcoin ETFs in Canada. While U.S. regulators haven’t approved the structure yet, high-profile issuers like Fidelity Investments have filed plans.
“The addition of ETFs in Canada has likely taken some capital away from GBTC,” said Seyffart. “Mainly institutional money as most retailers can’t just buy a Canadian ETF.”