Grayscale crisis: GBTC premium “good days” are gone forever?

For the first long-term negative premium in the six years since its founding, what happened to the Grayscale Bitcoin Trust Fund GBTC? Is it possible that the premium will reappear in the future?

Content overview

*In February of this year, the first discount transaction in the history of Grayscale Bitcoin Trust Fund;

*There are two main reasons for the occurrence of discount sales: first, new competitors appear in the market; second, increased sales pressure.

*What happened to the GBTC premium of Grayscale Bitcoin Trust Fund? Is it possible that the premium will reappear in the future?

At the end of February 2021, the Grayscale Bitcoin Trust Fund GBTC, which has been listed and publicly traded for 6 years, was traded at a discount for the first time in history. Now, 30 days have passed, and GBTC is still trading at a discount.

When large investors use cash or bitcoin to purchase GBTC through private placement at a net asset value (NAV) price, Grayscale will issue the corresponding GBTC stock; after that, these stocks will have a six-month lock-up period: the lock-up period expires Previously, they could not be sold on the secondary over-the-counter (OTC) market. In the past six years, GBTC has been sold at a premium-the market price of GBTC stock is about 35% higher than the net asset value. But now, Grayscale has begun to trade GBTC at a discount (the discount rate is about 4% at the time of writing), and the discount rate reached a peak of 12% at the beginning of March.

What happened to the GBTC premium of Grayscale Bitcoin Trust Fund? Is it possible that the premium will reappear in the future?

Grayscale can no longer monopolize the Bitcoin trust fund market

One of the most important factors affecting the GBTC family is that new competitors have recently entered this field. For those institutional investors who want to get in touch with Bitcoin, Grayscale GBTC has been their first choice for a long time. After all, there are only a handful of other products available on the market. But now, Grayscale can no longer monopolize the Bitcoin trust fund market.

In recent weeks, many new bitcoin investment products have appeared on the market. For example, Canadian regulators have approved several bitcoin exchange-traded funds. These products have attracted considerable assets in a short period of time.

On February 11, Purpose BTC ETF was approved by Canadian regulators and became the world’s first Bitcoin exchange-traded fund. The current cumulative asset size has exceeded US$800 million; in addition, Rivals Evolve Bitcoin ETF and CI Galaxy Bitcoin ETF The accumulated assets reached 84 million U.S. dollars and 38 million U.S. dollars respectively.

Nikolaos Panigirtzoglou, Managing Director of JP Morgan’s Global Market Strategy Team said:

“These newly established BTC ETFs have accumulated a large amount of funds, and the money should have been owned by GBTC.”

Nicholas Penigirzglow believes that Canada’s approval of Bitcoin exchange-traded funds—especially Purpose’s products—”has completely changed the rules of the game.”

ETFs are more attractive to institutional investors because this investment product is cheaper and can continue to issue stocks and redeem underlying investments. On the other hand, GBTC and other similar Bitcoin trust funds have a “lock-up period”, but there is no redemption mechanism for ETFs.

As a major GBTC stockholder, Ben McMillan from RG Alts said that the liquidity of the Grayscale Bitcoin Trust Fund is still very good, so GBTC is still an extremely attractive investment product. However, as more Bitcoin investment products are put on the market, investors will definitely have more choices, but there is no rush to stop using grayscale products immediately.

GBTC selling pressure intensifies

Crypto asset management company Nickel Digital fund manager David Fauchier (David Fauchier) said that in addition to the emergence of new competitors in the market, another important factor affecting the GBTC premium is that institutional investors sell their stocks to obtain arbitrage returns.

Historically, GBTC trading has always been at a premium because it provides a relatively simple way to invest in Bitcoin. Anyone can invest in the product through a broker or directly use funds from a retirement account to gain exposure to Bitcoin without worrying about custody requirements.

In order to obtain the GBTC premium, many institutional investors have been conducting arbitrage transactions. According to David Fauchier, around July last year was the hottest time for grayscale GBTC trading. The actual situation is indeed the case. According to the data compiled by The Block, GBTC’s capital inflow has continued to grow from around July last year to January this year.

David Faucier revealed: “In July last year, I received a lot of calls from investors who thought it was easy to make money to invest in Grayscale GBTC, and many people poured into it.”

Ari Pine, the founder of cryptocurrency brokerage firm Digital Gamma, said that the rapid growth of GBTC arbitrage trading coincides with the hot cryptocurrency lending market in the summer of 2020. But now, all GBTC traders who chased the premium last summer began to sell, which in turn pushed down the price of GBTC.

Ali Pine has worked in the traditional financial industry. He believes that what GBTC is now experiencing has also happened on Wall Street. The sell-off is a “horrible” thing. It may drain a stock. When it is sold, who is the last one? Toss, whoever loses the most.

Of course, some people have also asked why investors still choose to sell GBTC stocks if the premium cannot be obtained? Nicholas Penigirzglow explained that this is because investors are worried that GBTC may “never have a positive premium.”

On the other hand, with the emergence of more and more new competitors, the selling pressure will further intensify, and investors will have such a psychology-“In case Canadian Bitcoin ETFs, such as Purpose Bitcoin ETFs, become’new What about GBTC’?” If competing products become as large as GBTC and have the same liquidity, then over time, the role of GBTC will inevitably diminish, because investors will worry about missing new investment opportunities and switch to new ones. Competitive product.

Either way, Nicholas Penigirzglow believes that the “good days” of high GBTC premiums are gone. He said: “Can GBTC trade at a 20% or 30% premium again? I doubt it deeply.”

Many people in the industry agree with Nicholas Penigirziglow, including Nickel Digital’s David Faucier, Digital Gamma’s founder Ali Pine, RG Alts’s Ben Macmillan, and The ETF Nate Geraci of the Store.

No “new money” inflow

Grayscale Bitcoin Trust Fund is not only facing selling pressure, another problem seems to be even more difficult: there is no new capital flowing into GBTC now!

In the past more than a month, the inflow of GBTC funds has been relatively stable, but just last week, Grayscale stopped new investment in GBTC. Then, Grayscale’s parent company, Digital Capital Group (DCG), announced that it would purchase no more than 250 million U.S. dollars of GBTC shares (according to data compiled by The Block, as of February 22, DCG holds a total of nearly 12 million GBTC shares, worth approximately 633 million U.S. dollars.)

Some media asked why Grayscale stopped its new investment in GBTC. A representative of the company said that it would not comment on issues related to the price of GBTC.

It should be noted that once there is any trouble in Grayscale, cryptocurrency loan service providers such as BlockFi and Genesis may be affected, and there is even a potential risk of bankruptcy, because many traders use BlockFi and Genesis loan services to purchase Or lend Bitcoin to buy GBTC stock.

As of now, Genesis has declined to comment on this matter, and BlockFi is the second largest shareholder of Grayscale GBTC. According to data compiled by The Block, BlockFi owns approximately 36 million GBTC shares, valued at nearly US$2 billion. BlockFi CEO Zac Prince (Zac Prince) also declined to comment on the matter, but he believes that GBTC discount trading creates another arbitrage method that “may be as interesting as premium.”

Zach Prince said that because GBTC’s discount transaction is not conducive to its interests, Grayscale may take other measures to solve this problem. Perhaps this is one of the reasons why Grayscale’s parent company, Digital Capital Group, recently announced the purchase of GBTC shares. In addition, Grayscale announced the launch of five trust fund products, BAT, LINK, MANA, FIL and LPT, on March 17, aiming to diversify its income.

Zach Prince believes that Grayscale’s parent company, Digital Capital Group, may continue to buy GBTC shares, and Grayscale may try to convert GBTC into a Bitcoin exchange-traded fund or create a redemption mechanism for GBTC.

Last week, Grayscale released several recruitment information related to exchange-traded funds. Perhaps they will work hard in this direction next.