Institutions rush into $ 19K Bitcoin as GBTC premium hits 6-month high

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Demand for the Grayscale Bitcoin Trust (GBTC) continues to rise with its premium surpassing 30% on December 3. This indicates that Bitcoin (BTC) is experiencing increasing institutional demand as its price consolidates above $ 19,000.

The Grayscale Bitcoin Trust is an institutional vehicle that is tradable in the United States through the OTC markets. Accredited and institutional investors typically use the trust to gain exposure to BTC with their brokerage accounts.

Why is Grayscale Bitcoin Trust’s premium increasing?

The Grayscale Bitcoin Trust is the go-to institutional vehicle in the United States for BTC due to the lack of a Bitcoin Exchange Traded Fund (ETF).

Other markets, like Canada, have a Bitcoin ETF that investors can use to gain exposure to BTC. Without ETFs, US institutions are turning to alternative vehicles, like the Grayscale Bitcoin Trust, to invest in BTC.

Each share of the trust represents 0.00095346 BTC. Therefore, buying a share of the Grayscale Bitcoin Trust is like buying 0.095% of a Bitcoin.

GBTC or Premium discount to NAV. Source: Ycharts

As of December 3, the GBTC is trading at $ 23.39 while in the retail and spot markets Bitcoin is trading at around $ 19,250 which is 0.095% of BTC worth around 17.33 $. This means that GBTC is around 35% more expensive than buying Bitcoin at the current market price.

On December 3, the price of Bitcoin rose from $ 19,000 to $ 19,250 after the US market closed. When this difference is deducted, the current GBTC premium is around 25% to 30%. This is notably the highest level since June, when the BTC market price was around $ 9,600 before rebounding.

However, grayscale does not charge the premium. Market prices in the premium when traded on a public market in the United States As the premium increases, it means that more and more institutions and accredited investors are accumulating BTC through GBTC.

Although the current premium is increasing, it remains relatively low compared to 2017. This suggests that the Bitcoin rally still has a lot more leeway. When the GBTC premium increases, it usually signifies an uptrend and an overall increase in investor appetite for BTC.

As a result, the number of Bitcoin owned by Grayscale has increased dramatically in recent months. Currently, Grayscale has $ 10.19 billion in BTC, according to its latest report. In addition, Grayscale bought twice as much Bitcoin as the one mined in November.

Institutions propel the BTC rally

On top of the continued surge in grayscale Bitcoin demand, Travis Kling, a fund manager at Ikigai, found similarities between BTC’s past intraday price spikes and the entry of new institutions.

The Bitcoin price chart with institutional news. Source: Travis Kling

Kling cited a chart that marked when major institutions, such as JPMorgan, Citibank, Blackrock, and Guggenheim spoke positively about BTC, which was apparently followed by a rise in the price of BTC. On December 1, he said:

“I call this painting ‘The Traditional Assault’. We have been talking about “The Herd” for over 3 years. The herd needs cover against occupational risks. That’s it. They are by definition not early adopters, but their pockets are deep and their capital is sticky. #Bitcoin is just getting started. “

Unlike previous bull cycles, institutions are now more actively involved in the current Bitcoin rally. The clash between institutions accumulating BTC and selling whales could have fueled the extreme volatility of the market.