Cryptocurrency News

Why is Wall Street less interested in Grayscale’s Bitcoin Trust?


there is a reason scale The Bitcoin Trust (GBTC) emerged as a benchmark to measure institutional interest in bitcoin (B T c)

Grayscale is no longer the only option for investors

Digital currency investment products were among the only ones that offered hedge funds, endowments, pension funds and family offices a way to get exposure to bitcoin without requiring them to own digital assets.

Therefore, increasing capital flows into GBTC – such as a reported last year, in which Wall Street investors pooled nearly $18.2 billion into the fund – served as a metric to measure growing institutional interest in the crypto sector. Conversely, a decline in capital flows reflects institutional withdrawal or profit-taking, as has been the case since Q1 2021.

On-chain analytics service Skew reported on Thursday that GBTC stopped attracting new investments after February 2021. Capital flows stopped right when GBTC began trading at a negative premium to its net asset value, or NAV. The NAV represents the underlying market value of the holdings.

As soon as its premium turns negative, the money in the Grayscale Bitcoin Trust stops coming in. Source: slant

The GBTC premium was above 30% earlier this year. But the latest skew chart points it at -11.40%. GBTC’s premium to its NAV was at least 40.20%, its worst level in history.

At the same time, there was a slight recovery in GBTC premiums in early April, when Grayscale announced its intention to convert its trust structure to an exchange-traded fund (ETF). The New York firm’s decision came in the wake of increasing competition from then-newly launched ETFs in Canada, primarily because they offered a better expense ratio than Grayscale.

For example, Objective, the world’s first physically settled bitcoin ETF, came out with an expense ratio of 1%. Evolve and CI Galaxy, other Canadian bitcoin ETFs, offered 0.75% and 0.40%, respectively. Meanwhile, Grayscale’s expense ratio was up 2%.

Business Rivalry with Canadian Bitcoin ETFs Capital flows into GBTC may also have been blocked. For example, a month after its launch in February, $1 billion in capital was raised, indicating that demand for bitcoin investment products remains high, despite declining GBTC inflows.

Musk stuns Wall Street bitcoin investors

The period also saw an increase in the spot rate of bitcoin on the Elon Musk factor. Following Tesla’s revelation that it has $1.5 billion worth of BTC on its balance sheet, the cost of buying a single bitcoin was as low as $38,057 on February 8, rising to $64,899 on April 14, leading speculators to believe that more corporate will replace a portion of their cash holdings with the flagship cryptocurrency.

But the GBTC premium remained negative during Bitcoin’s February-April price rally. Its minus 40.20% bottom appeared when BTC/USD started to cut its gains due to profit taking, China’s crypto ban and Tesla’s bitcoin dump rumours.

Bitcoin correction sentiment intensified after Musk criticized the cryptocurrency for its carbon footprints. Source: BTCUSD on TradingView

Daniel Martins, founder of the independent research firm DM Martins Research, said, shed light on The decline came as a sign of declining Wall Street interest in bitcoin-related investments, especially after the cryptocurrency became an obvious victim of Musk’s anti-Bitcoin tweets in mid-May, losing more than half of its valuation at one point. gave.

Martins further noted that Grayscale reported annual returns of 500% higher than the Nasdaq, but its improvement was worse than the Great Recession of 2008 – 82% versus the Nasdaq’s 17%. This made Grayscale’s bitcoin investment product an “ultra-leveraged bet”, as well as a low risk-adjusted performance. The analyst said:

“The volatility of GBTC is almost nine times higher than that of the Nasdaq: 145% versus 17%.”

Grayscale ETFs in 2021?

Martins’ statements highlighted the possibility that the GBTC premium could face a further decline as investors look for more stable options against bitcoin’s ongoing price correction.

Furthermore, its rivalry from other digital currency investment options, including cryptocurrency custodian services, which offer institutional investors to own real crypto assets at an affordable fee, further risks limited capital flows.

ETF.com analyst Sumit Roy wrote That Grayscale Fund’s potential transition to an ETF ends its 2%-fee days because it will need to compete with an army of other ETFs, led by firms such as Bitwise, Vanguard, Fidelity, Cboe, and others. . she added:

“Yet whatever happens, GBTC is poised to become a force to be reckoned with, and is likely to stay around no matter how the crypto fund space develops.”

But whether US markets will have access to bitcoin ETFs in 2021 remains a mystery in itself. financial Times Reported Most ETF applications came to the dust earlier this week when US Securities and Exchange Commission Chairman Gary Gensler reiterated concerns about the safety of investors in the crypto markets.

“I expect that [delay] To be honest with all of our filings,” said Laura Morrison, global head of listings at Coby.