The largest Bitcoin fund has only ever hit a -35% discount

The largest Bitcoin fund has only ever hit a -35% discount

Grayscale Bitcoin Trust (GBTC), a cryptocurrency fund that currently holds 3.12% of the total bitcoin (BTC) supply, or over 640,000 BTC, is trading at a record discount to the value of its underlying assets.

Institutional interest in Greyscale is waning

As of Sept. 23, the $12.55 billion closed-end trust was trading at a 35.18% discount, according to the latest data.

Discount GBTC to BTC/USD spot price. Source: YCharts

For investors, GBTC has long been a great alternative to gain exposure to the bitcoin market, despite its 2% annual management fee. This is mainly because GBTC is easier for institutional investors to hold as it can be managed through a brokerage account.

For most of its existence, GBTC has been trading at a significant premium to bitcoin spot prices. But it started trading at a lower price after the debut of the first North American Bitcoin exchange-traded fund (ETF) in Canada in February 2021.

Unlike an ETF, a Grayscale Bitcoin Trust does not have a redemption mechanism. In other words, GBTC shares cannot be created or destroyed based on changing demand, which explains its heavily discounted prices compared to spot bitcoin.

Grayscale’s attempts to convert its trust into an ETF failed after the Securities and Exchange Commission (SEC) rejected it in June. In theory, SEC approval could reduce GBTC’s discount from its current level to zero, allowing those who bought the shares at lower rates to profit.

Grayscale sued the SEC over the rejection of its ETF application. But in reality, it could take years for the court to deliver its verdict, meaning investors would be stuck with their discounted GBTC shares, which have fallen more than 80% in value from their peak of around $55. achieved in November 2021.

GBTC daily price chart. Source: Trade View

In addition, GBTC’s 12-month adjusted Sharpe ratio fell to -0.78, indicating that the stock’s expected return is relatively low compared to its high volatility.

GBTC’s 12-month adjusted Sharpe ratio. Source:

Institutional interest in Grayscale Bitcoin Trust is clearly drying up.

Warning for the bitcoin spot price?

Greyscale is the world’s largest passive bitcoin investment vehicle by assets under management. But it has not necessarily had a strong impact on the BTC spot market following the emergence of rival ETF vehicles.

For example, cryptocurrency investment funds attracted a total amount of almost $414 million in 2022, according to CoinShares weekly report. In contrast, Grayscale saw an outflow of $37 million, including its Bitcoin, Ethereum and other token trusts.

Flow of funds by supplier. Source: CoinShares

On the contrary, the daily fluctuations of the bitcoin spot price are strongly determined by macroeconomic factors, at least for now.

NDAQ daily price chart against BTC/USD. Source: Trade View

A rising US dollar is also hurting bitcoin’s upside outlook, given its consistent negative correlation over the past year in a higher interest rate environment.

Also read: BTC mining company Calculate North files for bankruptcy

For example, the US Dollar Index (DXY), which measures the strength of the greenback against a basket of major foreign currencies, rose above 113, the highest level in 20 years, on 23 September. Similarly, yields on 2-year and 10-year US Treasuries rose to 4.21% and 3.69%, respectively.

US dollar index compared to 10-year and 2-year US Treasury yields. Source: Trade View

However, some on-chain indicators suggest that bitcoin may take off soon, based on historical data. However, from a technical point of view, the BTC price is still at risk of falling towards the $14,000-$16,000 area, according to independent analyst il Capo de Crypto.

Eight times chart of BTC/USD pair. Source: TradingView/Capo of Crypto

“It is more likely that the [Bitcoin] rejected at the first resistance 20300-20600,” he said, citing the chart above. He then added:

“Wait for the rebound, then get out of all the markets. »

Other bitcoin analysts have talked about even lower targets, like $10,000-$11,000, because this is a historically high volume range.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of All investments and transactions involve risk. You should do your own research before making a decision.

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