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Grayscale Bitcoin Trust ($ GBTC) is currently the largest listed cryptocurrency asset with $ 30.17 billion in assets under management. The company currently holds over 655,730 BTC and the stock is tradable in the United States on the over-the-counter markets.
How is GBTC different from a Bitcoin ETF?
The fund was launched in 2013 and the Grayscale Bitcoin Trust has become the preferred institutional vehicle in the United States for BTC due to the lack of a Bitcoin exchange-traded fund (ETF).
Investment trust funds are regulated by the United States Office of the Comptroller of the Currency (OCC) and are designed exclusively for accredited investors. However, these can be sold to retail traders after a six month blocking period.
This specificity causes GBTC shares to trade above the BTC equivalent held by the trust whenever there is retail demand in secondary markets. Meanwhile, institutional clients can buy at par directly from Grayscale Investments, regardless of the price in the OTC markets.
As noted above, such a premium sometimes exceeded 40%, indicating strong buying pressure from investors. The situation has changed over the past four weeks as the price of Bitcoin peaked at $ 58,000 and initiated a substantial correction, which brought the GBTC premium to between 5% and 10%.
A decreased appetite in secondary markets creates a potential imbalance as there is currently no reimbursement program for the GBTC. If there was a way to convert it back to BTC, a market maker would happily buy the trust shares at a discount.
While the recent fall in prices may explain the 7% reduction seen on February 26, Bitcoin has faced multiple 30% corrections in the past with no apparent impact on the GBTC premium. Even during the horrific bear market at the end of 2018, GBTC traded above the net asset value (NAV).
A new challenger appears
While no better alternative has been offered before, Canada’s TSX launched a Bitcoin ETF on February 18, offering investors direct exposure to BTC. This structure allows the market maker to create and buy back shares, thus minimizing any premium or discount to the net asset value.
This time around, the selling pressure that took place revealed less buying activity from unaccredited investors. On the other hand, the Canadian Purpose Investments ETF surpassed 10,000 BTC under management in one week, signaling the success of the instrument despite a sharp drop in the price of BTC.
Unless Grayscale Investments opens a buyback program, nothing prevents GBTC from continuing to trade below its net asset value.
The opinions and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You need to do your own research when making a decision.
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