Grayscale Bitcoin Trust (GBTC), a cryptocurrency fund currently holding 3.12% of total Bitcoin (BTC) supply, or over 640,000 BTC, is trading at a record discount to the value of its underlying assets.
Institutional interest in grayscale is drying up
As of Sept. 23, the $12.55 billion closed trust was trading at a discount of 35.18%, according to the latest data.
Despite its 2% annual management fee, GBTC has long been a great alternative for investors to gain exposure to the bitcoin market. This is mainly because GBTC is easier to hold for institutional investors as it can be managed through a brokerage account.
For most of its existence, GBTC traded at a high premium to spot bitcoin prices. However, after the debut of the first North American bitcoin exchange-traded fund (ETF) in Canada in February 2021, it started at a discount.
Unlike an ETF, the Grayscale Bitcoin Trust does not have a repayment mechanism. In other words, GBTC shares cannot be destroyed or created due to fluctuating demand, which explains the greatly discounted prices compared to spot bitcoin.
Efforts by Grayscale to convert its trust in ETFs foundered after the Securities and Exchange Commission’s (SEC) rejection in June. In theory, SEC approval could have reset GBTC’s discount from current levels to zero, bringing profits to those who bought the shares at cheaper prices.
Grayscale sued the SEC for rejecting the ETF filing. But realistically, it could be years before the court rules, meaning investors would hold onto their discounted GBTC shares, which have fallen more than 80% in value from their November 2021 peak of around $55.
GBTC’s 12-month Adjusted Sharpe Ratio has also fallen to -0.78, showing that the stock’s expected return is relatively low compared to its significantly high volatility.
Simply put, institutional interest in the Grayscale Bitcoin Trust is drying up.
A Spot Bitcoin Price Warning?
Grayscale is the world’s largest passive Bitcoin investment vehicle by assets under management. But it’s not necessarily enjoying a strong impact on the spot BTC market after the emergence of competing ETF vehicles.
For example, crypto mutual funds have attracted nearly $414 million in total in 2022, according to CoinShares weekly report. In contrast, Grayscale has seen $37 million in outflows, including the trusts of Bitcoin, Ethereum, and other tokens.
Instead, the daily fluctuations in the spot bitcoin price are heavily driven by macro factors, at least for now.
A stronger US dollar is also hurting Bitcoin’s upside prospects, as Bitcoin has consistently been negatively correlated over the past year in an environment of higher interest rates.
Related: BTC mining company Compute North files for bankruptcy
For example, the US Dollar Index (DXY), which measures the greenback’s strength against a basket of major foreign currencies, rose above 113 on September 23, its 20-year high. US Treasuries have risen to 4.21% and 3.69% respectively over the past year.
However, several on-chain metrics suggest that Bitcoin could bottom soon based on historical data. However, from a technical perspective, the price of BTC is still risking a decline towards the $14,000-$16,000 area, according to crypto independent analyst il Capo.
That’s more likely [Bitcoin] will decline at first resistance of 20300-20600,” he said while citing the chart above, adding:
“Wait for the recovery and then exit all markets.”
Other bitcoin analysts have eyed even lower targets like $10,000 to $11,000 as this is a historically high-volume range.
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