Bitcoin is struggling to surpass the $40,000 mark again, after crossing it for a short period on May 26. The digital currency is currently trading near the $36,000 price, a level that points to a 44% decline since its peak price of $64,889 on April 14. Institutional demand remains a key macroeconomic factor impacting the cryptocurrency market.
Grayscale BTC Premium in Negative Since February End
Grayscale Bitcoin Trust (GBTC) is an investment manager that facilitates interaction between businesses and digital currencies. The trust enables investors to engage with BTC prices, without storing the token themselves. GBTC trades publicly on the OTCQX, an over-the-counter marketplace for stock trading. At present, GBTC is selling in the range of $30, a 40% decrease from its all-time peak of $58.22 on Feb 19.
Each GBTC share tracks Bitcoin’s market price and represents 0.00094716 BTC. Investors are required to deposit at least $50,000 for a minimum period of six months, making the investment unsuitable for retail investors.
Backed by institutional demand, GBTC usually trades at a premium to the current value — also known as net asset value — of the holdings. GBTC premium represents the difference between the value of trust’s holdings against their market price. Before Feb 23, this difference was always positive. However, by the end of this February, the premium recorded a historic low of -17.89%.
The premium difference is fuelled by demand and supply in the crypto market. Higher GBTC premiums reflect the increased movement of Bitcoin into the trust, whereas lower premiums treading into the negative territory, suggest a lower Bitcoin inflow, leading to discount trading.
Current GBTC Decline Good Indicator of Market Sentiment
Nikita Ovichinnik, chief business development officer at a crypto exchange, 1inch Network, shared his views on the changing GBTC premium trends. “It looks like GBTC premium is a very good indicator of medium-term market sentiment. The premium turned negative at the end of April, and while the digital assets experienced a local boom, lack of institutional interest predicted May’s market cap shrinkage,” he said.
Explaining the current trend of decline, Ovichinnik added:
“GBTC is one of the most convenient and secure points of entry for institutional funds. It looks like their demand was one of the drivers early in 2021, but it slowed down and we no longer hear new entities claiming that they have decided to diversify and are trying to hold blockchain assets.”
While GBTC has been trading at a discount in relation to NAV, the trend has seen a few positive signs recently. Between May 21 and May 24, the GBTC discount recorded an upswing from -21.23% to -3.86%, before it fell close to -12% on June 3. The rebound hints at increased institutional interest in the wake of reduced Bitcoin prices.
More Bitcoin ETFs Launched Since GBTC Premium Drop
Like GBTC, investors could opt for regulated Bitcoin exchange-traded funds (ETFs) to gain exposure to the volatile crypto market. On Feb 18, Purpose Investments inaugurated North America’s first Bitcoin ETF. Within a month, the fund saw its assets under management (AUM) cross $1 billion. As of June 4, the fund’s AUM stands at $714.6 million or 19,407.63 Bitcoin and uses the ticker BTCC.
In the meantime, Evolve ETFs launched its own Bitcoin ETF on Feb 19 with the ticker EBIT. Though, Evolve lost on the advantage of being the first ETF to Purpose, its AUM stands at an impressive $78.52 million, which is 12% of BTCC’s AUM.
The timing of the launch of these ETFs is indeed interesting. They’ve arrived at the scene right when GBTC started to trend at a discount. Bryan Routledge, associate professor of finance at Carnegie Mellon University’s Tepper School of Business, believes “ETFs are a cheaper (transaction costs, fees) way to Bitcoin exposure. So, the premium on Grayscale has fallen — reflecting good old-fashioned competition.”
ETFs To Compete With GBTC
Both Purpose and Evolve, charge their clients 1% and 0.75% in management fees, which is considerably lower than GTBC’s management fee of 2%. With the success of Canadian ETFs, Grayscale too is motivated to convert its products into ETFs. But for this, the trust would need to go through the Securities and Exchange Commission of the United States, where firms like SkyBridge and Fidelity are already in the queue for a permit.
If the S.E.C. agrees to any of the applications for ETFs, the competition in the Bitcoin ETF market will heat up quite soon. Until then, GBTC remains the main source of understanding institutional demand. The trust will remain closed for investments till September this year. Therefore, the current discount is not expected to undergo any significant changes. But a few good spells, like the one between May 21 and May 24, could bear relief for the lacking institutional interest in the market.