Cryptocurrency News

GBTC Premium Remains Negative, Is Bitcoin Price Sentiment Still Lower?

bitcoin (B T c) is facing difficulty Breaking the $40,000 Mark Again After briefly crossing it on 26 May. The cryptocurrency is currently trading hands at the $36,000 mark, a 44% drop from its all-time high of $64,889 on April 14. Among others, a key difference between macroeconomic conditions affecting cryptocurrency is market institutional demand as a whole.

One of the major investment vehicles for set demand is the Grayscale Bitcoin Trust (GBTC), a BTC trust from Grayscale Investments, one of the most important investment managers for institutions involved in digital currencies. The Trust allows investors to be exposed to the price of bitcoin through a regulated traditional investment vehicle without having to directly buy, store and secure their tokens.

GBTC is publicly traded on OTCQX, an over-the-counter marketplace that enables stock trading. GBTC is currently trading in the $30 range, down 46% from its all-time high of $58.22 on February 19.

Each share represents 0.00094,716 BTC, with the share tracking the market value of bitcoin, excluding applicable fees and expenses. It has a minimum holding period of six months and a minimum investment requirement of $50,000, which means it is not ideally suited for retail investors.

Grayscale BTC premium negative for over three months

Due to the institutional demand implications that support Grayscale and the fact that it is a regulated way of exposure to bitcoin, its products typically trade at a premium to the net asset value (NAV), or current value of holdings. Huh. The GBTC premium refers to the difference between the value of assets held by the trust versus the market value of those holdings.

Prior to February 23 of this year, the difference was always a positive number indicating a premium that reached an all-time high of 122.27% four years earlier on June 6, 2017. Since the end of February this year, the premium has turned into discount, hitting an all-time low of -17.89% on May 16.

As this gap is driven by supply and demand factors in the market, an increasing premium in GBTC indicates a higher inflow of bitcoin into trust, while a decreasing premium in discount indicates a decline in BTC inflow. Assuming that GBTC trades at a discount To spot the price of bitcoin.

Cointelegraph discussed the implications of the change in GBTC premium trend with Nikita Ovchinnik, Chief Business Development Officer at 1 Inch Network – decentralized cryptocurrency exchange. Ovchinnik said, “It appears that the 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 asset experienced a local boom, a lack of institutional interest led to May predicted market cap shrinkage.

This trend is in line with the number of bitcoins that Grayscale Trust has held, as it has been gradually increasing since January 13 and reached its all-time high of 655,702.89 tokens on March 2. Since then, its bitcoin reserves have been operational. A gradual decline for the first time on June 4 to the current level of 652,410.55. The trust currently has an AUM of $24.27 billion.

Premium allows investors to take advantage of this opportunity through arbitrage opportunities. One way for investors is to borrow bitcoin and use it as an exchange for GBTC shares. After the lock-up period of six months is over, investors can sell the shares at the prevailing premium in the secondary market.

With the money received on this exchange, they buy the borrowed BTC tokens and give them back to the lender. In this process, investors pocket the difference in price generated on account of the premium, thus successfully executing their arbitrage. Ovchinnik continued:

“GBTC is one of the most convenient and secure points of entry for institutional funds. It seems that their demand was one of the drivers in early 2021, but it slowed down and we no longer hear new entities claiming that they have decided to diversify and are trying to have blockchain assets. Huh.”

In traditional financial markets, the GBTC premium/discount can be compared to the pricing of closed-end mutual funds. Ideally, since the amount of bitcoin held by the trust is publicly disclosed, the value of the trust should be exactly equal to that value. Due to the above premium/discount factors, the value is not the same.

Brian Routledge, associate professor of finance at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph that “premium reflects its status as a ‘regulated’ alternative to owning bitcoin,” thus, “an investor can’t use one or the other.” Will pay a premium for access through the medium. Routledge also stated that the GBTC premium should not be treated as an additional cost:

“If you buy and sell and the premium is the same, the impact is minimal. Lately, there are more easy and comfortable ways to access bitcoin, so the premium in grayscale has dropped. It is now at a discount relative to the Bitcoin NAV.”

Despite GBTC trading as a discount with respect to NAV, the recent trend has shown some positive signs. GBTC discount made a swift comeback Fell from -21.23% to -3.86% between May 21 and May 24, to around -12% by June 3. This indicates that institutional interest is increasing in line with the halving of the bitcoin price in the midst of these days.

The direction in which the GBTC premium/discount moves can serve as an indicator of market sentiment in the asset, especially among institutional investors.

The Bitcoin ETF is a Close Competitor of GBTC

In addition to GBTC, another route for institutional and retail investors to gain exposure to bitcoin price volatility through a regulated channel is through bitcoin exchange-traded funds.

Objective Investing launched North America’s first bitcoin ETF on February 18, which saw an increase in assets under management (AUM). Over $500 million in a week And later across $1 billion in a single month. The AUM of the ETF is currently $714.6 million or 19,407.63 bitcoins as of June 4 and uses the ticker BTCC.

In addition to Purpose’s BTC ETF, the Evolve ETF launched its own bitcoin ETF with the ticker EBIT on February 19. Although it lost out on the first-mover advantage that Purpose’s ETF received, it currently has assets under management of $78.52 million, which is just 12% of BTCC’s current AUM. Overall, there are several notable ETFs listed on the Toronto Stock Exchange.

related: Carbon-neutral bitcoin funds gain traction as investors seek green crypto

One thing to note about these ETFs is that the timing of their launch coincided with a reduction in the GBTC premium, which eventually turned into a discount. Routledge noted why this may be, “ETFs are a cheap (transaction cost, fee) way to get bitcoin exposure. Therefore, the premium on Grayscale has fallen – reflecting good old-fashioned competition.”

The GBTC Trust has a management fee of 2%, while the Purpose BTC ETF has a management fee of 1%, and the Evolve ETF fee is less than 0.75%. Due to the success of existing Canadian ETFs, the attractiveness of the ETF market is such that even Grayscale has confirmed that it will Converting Your Products to ETFs Instead.

But before that, they’ll need approval from the United States Securities and Exchange Commission so elusive that many Firms have already applied, which includes Fidelity and Skybridge. For Ovchinnik, the existence of these new products is “very important on the long-term horizon, even if we don’t see change immediately.”

related: for the long haul? When bitcoin dropped, institutions held fast

Competition for BTC ETF market share is set to heat up if the US SEC approves any of the many crypto ETF applications it has received. To that end, GBTC remains one of the top indicators of institutional interest, with ETFs following their heels and fighting for equal market participants.

Furthermore, as GBTC remains closed for fresh investments till September this year, the current GBTC discount is not expected to change drastically, but a spell of positive trend between May 21 and May 24 will bring good news for lack of institutional demand. could. felt in the market.