Grayscale Bitcoin Premium Flips Negative as BTC Stays Below $50,000

Bloomberg

Biggest Bitcoin Fund is sinking to take a discount when Mania cools off

(Bloomberg) – The world’s largest Bitcoin fund is selling faster than the cryptocurrency itself as investors rush to the exits. The $ 31.6 billion grayscale Bitcoin trust (ticker GBTC) fell 22% this week, beating the 17% decline of the world’s largest cryptocurrency. That’s GBTC’s once massive premium for the bitcoin it holds. GBTC’s price closed 3.8% below its underlying holdings on Thursday – a record discount, according to Bloomberg data. This is an unusual situation for GBTC. The company has persisted in trading at a premium on its net asset value since the fund was launched in 2013. That number rose to 40% in late 2020, with investors willing to pay a premium for exposure to Bitcoin’s dizzying rally. This avalanche of inflows brought GBTC shares outstanding to a record 692 million. However, GBTC does not allow redemptions. This means that shares can only be created, not destroyed. With Bitcoin’s surge now stalling, it creates an imbalance between supply and demand as the trust’s participants try to find buyers in the secondary market. “This is more indicative of the fact that so many stocks are available and shows the demand for Bitcoin as these prices are falling,” said James Seyffart, an analyst at Bloomberg Intelligence. Bitcoin hit a record high of over $ 58,000 last weekend but has stumbled since then. The cryptocurrency fell another 0.2% on Friday, en route to its worst weekly drop in a year. The broader Bloomberg Galaxy Crypto Index, which tracks Bitcoin, Ether and three other cryptocurrencies, is down 19.7% this week. Soaring tech stocks were hammered as investors re-rated high valuations. The Nasdaq 100 was on its way to its worst week since March. Among the hardest hit stocks is Cathie Wood’s line of Ark Investment Management ETFs. The flagship ARK innovation ETF is on the right track for a fifth straight day and is poised to offset its year-to-date gains after rising nearly 150% in 2020. Ark Investment is GBTC’s fourth largest owner. Michael Sonnenshein, Chief Executive Officer of Grayscale Investments, acknowledged the risk of the GBTC premium disappearing when speaking on a panel for the Bloomberg Crypto Summit Thursday: “It’s certainly a risk, no question about it, but ultimately pricing will in GBTC every day definitely by market forces, ”said Sonnenshein. A large number of new entrants could also question GBTC’s dominance of the competitive landscape. The Bitwise 10 Crypto Index Fund, the Osprey Bitcoin Trust, and the SkyBridge Bitcoin Fund LP were all launched in the past three months. Meanwhile, two Bitcoin ETFs – a structure that has yet to be approved by U.S. regulators – were trading in Canada this month. “Several competing products have been launched since the beginning of the year,” said Nate Geraci, president of the ETF Store, a consulting firm. “The uncomfortable truth for GBTC investors is that competition is eroding demand for the product, which can lead to a collapse in the premium or even a discount.” (Updates prices continuously.) For more articles like this, visit bloomberg.com. Subscribe Now Stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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