GBTC premium stays negative, suggests Bitcoin price sentiment still low?

June 6, 2021 Coin Telegraph

GBTC premium stays negative for over three months as its holdings decline gradually, while BTC price struggles around the $37,000 mark.

Bitcoin (BTC) is facing difficulty breaching the $40,000 mark again after briefly crossing it on May 26. The cryptocurrency is currently exchanging hands at around the $36,000 mark, which is a 44% drop from its all-time high of $64,889 on April 14. Among others, a key difference between macroeconomic conditions affecting the cryptocurrency market as a whole is institutional demand.

One of the key investment vehicles for set demand is the Grayscale Bitcoin Trust (GBTC), a BTC trust of Grayscale Investments, one of the most significant investment managers for institutions indulging in digital currencies. The trust allows investors to have exposure to the price of Bitcoin through a regulated traditional investment vehicle without having to buy, store and safe-keep their token directly.

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

Each share represents 0.00094716 BTC, with the share tracking Bitcoin’s market price, excluding the applicable fees and expenses. It has a minimum holding period of six months and a minimum investment requirement of $50,000, entailing that it is not ideally suited for retail investors.

Grayscale BTC premium negative for over three months

Due to implications of institutional demand that backs Grayscale and the fact it’s a regulated way of gaining exposure to Bitcoin, its products usually trade at a premium to the net asset value (NAV), or the current value of the holdings. The GBTC premium refers to the difference between the value of the assets held by the trust against the market price of those holdings.

Before Feb. 23 of this year, this difference was always a positive number indicating a premium that hit its all-time high of 122.27% four years ago on June 6, 2017. Since the end of February this year, the premium has turned into a discount reaching an all-time low of -17.89% on May 16.

Since this difference is driven by supply and demand factors in the market, a rising GBTC premium shows a higher inflow of Bitcoin into the trust, while a decreasing premium transitioning into a discount indicates a declining BTC inflow entailing that GBTC trades at a discount to spot price of Bitcoin.

Cointelegraph discussed the implications of the change of the GBTC premium trend with Nikita Ovchinnik, chief business development officer of 1inch Network — a decentralized cryptocurrency exchange. Ovchinnik said, “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.”

This trend is consistent with the number of Bitcoin the Grayscale trust has in its holdings, as it has been increasing gradually since Jan. 13 to reach its all-time high of 655,702.89 tokens on March 2. Since then, its Bitcoin reserves have been on the gradual decline for the first time ever to the current levels of 652,410.55 as of June 4. The trust currently has an AUM of $24.27 billion.

The premium allows investors to leverage this opportunity through arbitrage opportunities. One way is for investors to borrow Bitcoin and use it as an exchange for GBTC shares. Once the six-month lock-up period ends, investors can sell the shares in the secondary market at the prevailing premium.

With the funds they receive in this exchange, they purchase and give back the borrowed BTC tokens to the lender. In this process, investors pocket the difference in price created due to the premium, thus successfully executing their arbitrage. Ovchinnik further opined:

“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.”

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

Bryan Routledge, associate professor of finance at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph that the “premium reflected its position as a ‘regulated’ alternative to owning Bitcoin,” thus, “an investor would pay a premium for the access via a trust.” Routledge also added that the GBTC premium shouldn’t be perceived as an additional cost:

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

Despite GBTC trading as a discount in relation to NAV, there have been a few positive signs in the recent trend. The GBTC discount rebounded sharply between May 21 and May 24 from -21.23% to -3.86% before falling to around -12% as of June 3. This indicates that institutional interest is rising in tandem with reducing Bitcoin prices between these days.

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

Bitcoin ETFs a close competitor to GBTC

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

Purpose Investments launched North America’s first-ever Bitcoin ETF on Feb. 18, which saw the assets under management (AUM) rise to over $500 million in under a week and subsequently crossed $1 billion in the same month. The ETF’s AUM currently stands at $714.6 million or 19,407.63 Bitcoin as of June 4 and uses the ticker BTCC.

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

What’s interesting to note about these ETFs is that the timing of their launch coincides with a decrease in the GBTC premium, which eventually turned into a discount. Routledge mentioned why this could be the case, “ETFs are a cheaper (transaction costs, fees) way to Bitcoin exposure. So, 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 even less at 0.75%. Due to the success of the existing Canadian ETFs, the lure of the ETF market is such that even Grayscale has confirmed that it will be turning its products into ETFs instead.

But before that, they would need the much elusive approval from the United States Securities and Exchange Commission that several firms have already applied for, including Fidelity and SkyBridge. For Ovchinnik, the existence of these new products is “very important over the long-term horizon, even though we might not see changes instantly.”

The competition for the BTC ETF market share is set to heat up if the U.S. SEC approves any of the several crypto ETF applications it has received. Until that point, GBTC remains among the top indicators of institutional interest, with ETFs following at its heels and fighting for the same market participants.

Furthermore, as the GBTC remains closed for new investments until September this year, drastic changes to the current GBTC discount are not expected, but a spell of positive trends as noticed between May 21 and May 24 could bring good news for the lack of institutional demand felt in the market.

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

June 3, 2021 Coin Telegraph

bitcoin etf

BTC demand via Grayscale Bitcoin Trust is dropping for several key reasons.

There is a reason why Grayscale Bitcoin Trust (GBTC) emerged as a benchmark to measure institutional interest in Bitcoin (BTC).

Grayscale no longer the only option for investors

The digital currency investment product was among the only ones that offered hedge funds, endowments, pension funds, and family offices a way to gain exposure to Bitcoin without needing them to own the digital asset themselves.

Therefore, a rising capital inflow into GBTC — such as the one reported last year, wherein Wall Street investors deposited about $18.2 billion in the fund — served as a metric to gauge growing institutional interest in the crypto sector. Conversely, a declining capital inflow reflected institutional withdrawal or profit-taking, like the one happening since the first quarter of 2021.

On-chain analytics service Skew reported Thursday that GBTC stopped attracting fresh investments after February 2021. The capital inflows paused right when GBTC started trading at a negative premium to its net asset value, or NAV. NAV represents the underlying market value of the holdings.

*Money stops flowing into Grayscale Bitcoin Trust as its premium flips negative. Source: Skew*

The GBTC premium was upward of 30% at the beginning of this year. But the latest Skew chart pinpoints it at -11.40%. GBTC's premium to its NAV was min40.20% at its sessional low, its worst level in history.

Meanwhile, GBTC premium logged mild recoveries in early April after Grayscale announced its intentions to convert its trust structure to an exchange-traded fund (ETF). The New York firm's decision came in the wake of growing competition from then-newly launched ETFs in Canada, primarily as they offered better expense ratios than Grayscale's.

For instance, Purpose, the world's first physically settled Bitcoin ETF, surfaced 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 a heightened 2%.

Business rivalries with Canadian Bitcoin ETFs might have also choked capital inflows into GBTC. Purpose, for instance, raked in $1 billion capital a month after its launch in February, reflecting that demand for Bitcoin investment products remained higher despite a plunge in GBTC's inflows.

Musk rattled Wall Street Bitcoin investors

The period also saw Bitcoin's spot rate riding higher on the Elon Musk factor. Following Tesla's revelation that it was holding $1.5 billion worth of BTC in its balance sheets, the cost to purchase one Bitcoin rose from as low as $38,057 on Feb. 8 to as high as $64,899 on April 14, with speculators believing that more corporates would replace a portion of their cash holdings with the flagship cryptocurrency.

But GBTC premium stayed negative during the course of Bitcoin's February-April price rally. Its minus 40.20% bottom appeared when BTC/USD started shedding its gains owing to profit-taking, China's crypto ban, and Tesla's Bitcoin dump rumors.

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

Daniel Martins, the founder of independent research firm DM Martins Research, highlighted the decline as a sign of waning Wall Street interest in Bitcoin-related investments, especially after the cryptocurrency became a clear victim of Musk's anti-Bitcoin tweets mid-May, losing more than half its valuation at one point later.

Martins further noted that Grayscale reported 500% higher annualized returns than Nasdaq, but its correction was also worse than the 2008's Great Recession — 82% vs. Nasdaq's 17%. That made Grayscale's bitcoin investment product an "ultra-leveraged bet," accompanied by an inferior risk-adjusted performance. The analyst added:

"GBTC's volatility has been nearly nine times as high as the Nasdaq's: 145% vs. 17%."

Grayscale ETF in 2021?

Martins' statements highlighted possibilities that GBTC premium could face further downside moves as investors hunt for more stable alternatives against Bitcoin's ongoing price correction.

Moreover, its rivalry from other digital currency investment alternatives, including cryptocurrency custodian services that offer institutional investors to own real crypto assets at a cheaper fee, further risks limited capital inflow.

ETF.com's analyst Sumit Roy wrote that the Grayscale fund's potential transition into an ETF ends its 2%-fee days as it would need to compete with an army of other ETFs, led by firms like Bitwise, Vanguard, Fidelity, Cboe, and others. He added:

"Yet regardless of what happens, GBTC is poised to be a force, and will likely stick around no matter how the crypto fund space evolves."

But whether the US markets would have access to a Bitcoin ETF in 2021 remains a mystery itself. Financial Times reported earlier this week that most ETF applications gather dust as the US Securities and Exchange Commission's chair Gary Gensler reiterated worries about investor protection in crypto markets.

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

Grayscale GBTC and ETHE Premiums Back at Highs

May 25, 2021 The Crypto Briefing

Grayscale Fund Touts ETF Conversion as Price Discount Issue Solution

May 16, 2021 Bitcoin.com

Grayscale’s diversified crypto fund files to become SEC reporting company

May 13, 2021 Coin Telegraph

Coin Telegraph

Grayscale Investments has filed to make its $630 million diversified large-cap crypto fund an SEC reporting company.

Grayscale has filed its third Form 10 with the United States Securities and Exchange Commission to convert one of its investment funds into an SEC-reporting company.

Tweeting on Thursday, Grayscale announced that the company's Digital Large Cap Fund, or GDLC, has filed the application with the SEC.

Today we voluntarily filed for Form 10 with the SEC for $GDLC. If effective, it would designate GDLC as Grayscale’s third digital currency investment vehicle to become an SEC reporting company, following $GBTC as the first and $ETHE as the second in the US.https://t.co/z0KkJ7OMbu
— Grayscale (@Grayscale) May 13, 2021

If approved, the GDLC will be obliged to file quarterly and annual financial reports in addition to other mandated documents stated in the Exchange Act. The move is also the first step in making the GDLC into a publicly-traded asset since an approval form the SEC would mean registration of the shares of the fund with the commission.

Launched back in 2019, GDLC has grown almost 300% and currently holds about $630.1 million in assets under management, according to data from the company's website. GDLC is comprised of five cryptocurrencies namely: Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH), Litecoin (LTC), and Chainlink (LINK).

Back in January, Grayscale liquidated XRP from the market-cap weighted GDLC fund amid SEC's lawsuit against Ripple.

GBTC discount presents a unique challenge for Grayscale and investors

May 8, 2021 Coin Telegraph

Arbitrage

The Grayscale Bitcoin Trust continues to trade at a discount compared to BTC, a situation that presents a unique challenge to Grayscale and investors.

Since 2013 the Grayscale Bitcoin Trust Fund (GBTC) has offered its investors exposure to Bitcoin (BTC) through a publicly quoted private instrument. However, the trust's convertibility and liquidity vastly differ from an Exchange Traded Fund (ETF).

Trusts are structured as companies, at least in regulatory form, and are 'closed-end funds' which can initially only be sold to accredited investors. This means the number of available shares is limited, and retail traders can only access them via secondary markets. Furthermore, a GBTC share cannot be redeemed for the underlying BTC position.

Historically, GBTC used to trade above the equivalent BTC held by the fund, which was caused by the retail crowd's excess demand. The common practice for institutional clients was to buy shares directly from Grayscale at par and sell at a profit after the six-month lock-up period.

During most of 2020, GBTC shares traded at a premium to its Net Asset Value (NAV), which varied from 5% to 40%. However, this situation drastically changed in March 2021. The approval of two Bitcoin ETFs in Canada heavily contributed to extinguishing the GBTC premium.

ETF funds are less risky and cheaper compared to trusts. Moreover, there is no lock-up period, and retail investors can attain direct access to buy shares at par. Therefore, the emergence of a better Bitcoin investment vehicle seized much of allure that GBTC once possessed.

Can DCG save GBTC?

*Grayscale GBTC premium vs. net assets value. Source: Ycharts*

In late February, the GBTC premium entered adverse terrain, and holders began desperately flipping their positions to avoid getting stuck in an expensive and non-redeemable instrument. The situation deteriorated up to an 18% discount despite BTC price reaching an all-time high in mid-March.

On March 10, Digital Currency Group (DCG), Grayscale Investments' parent company, announced a plan to purchase up to $250 million of the outstanding GBTC shares. Although the conglomerate did not specify the reason behind the move, the excessive discount certainly would have pressured their reputation.

As the situation deteriorated, DCG announced a roadmap for turning its trust funds into a U.S. ETF, although no specific guarantees or deadlines have been informed.

On May 3, the firm announced that it had purchased $193.5 million worth of GBTC shares by April. Moreover, DCG increased its GBTC shares repurchase potential to $750 million.

Considering the $36.3 billion in assets under management for the GBTC trust, there's reason to believe that buying $500 million worth of shares might not be enough to ease the price discount.

Because of this, some important questions arise. For example, can DCG lose money by making such a trade? Who's desperately selling, and is a conversion to an ETF being analyzed?

Looking forward

As the controller of the fund administrator, DCG can buy the trust fund's shares at market prices and withdraw the equivalent Bitcoin for redemption. Therefore, buying GBTC at a discount and selling the BTC at market prices will consistently produce a profit and there's no risk by doing this.

Apart from a few funds that regularly report their holdings, there's no way to know who has been selling GBTC below net asset value. The only investors with 5% or more holdings are BlockFi and Three Arrows Capital, but none have reported reducing their position.

Therefore, it could be potentially multiple retail sellers exiting the product at any cost, but it is impossible to know right now.

While buying GBTC at a 10% or larger discount might seem a bargain at first, investors must remember that as of now, there's no way of getting out of those shares apart from selling it at the market.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Invictus Capital AUM reaches $112M as crypto adoption booms

May 6, 2021 Coin Telegraph

Adoption

The company’s Crypto20 index fund registered 221% growth quarter-over-quarter.

Cryptocurrency asset manager Invictus Capital saw significant growth in assets under management during the first quarter, highlighting the rapid uptake of digital assets among institutional investors.

Assets under management surged by 50% to $112 million in the quarter ending March 31, Invictus disclosed Thursday. The company’s Crypto20 index fund, a tokenized fund of the top-20 cryptocurrencies, registered 221% growth.

“Our Q1 report speaks volumes about the cryptocurrency market’s ongoing boom and the lucrative opportunity that structured crypto funds offer,” CEO Daniel Schwartzkopff said, adding:

"We see the most recent bull cycle—which coincides with greater institutional adoption—as a critical juncture in Bitcoin’s relatively short history and a signal that the broad adoption of cryptocurrencies as a global store-of-value is becoming a certainty for the medium term, with digital assets offering many improvements over assets that have traditionally filled the role, such as gold.”

Invictus Capital’s growth mirrored a tremendous bull cycle for the cryptocurrency market during the first quarter, as the total market capitalization of digital assets rose 134% to over $1.86 trillion, according to Coingecko data. The market is charting new all-time highs on Thursday, with total assets collectively valued at $2.46 trillion.

Institutional adoption of crypto-assets is also on the rise, with the latest weekly inflows report from CoinShares showing significant growth across Bitcoin (BTC), Ethereum (ETH) and smaller cap altcoins. Institutions now hold nearly $65 billion in assets under management, according to the calculations.

Grayscale remains by far the largest institutional manager of crypto funds. On Wednesday, the company reported a total of $49.8 billion in assets across its family of products.

Digital Currency Group backs South Korean crypto exchange operator

May 6, 2021 Coin Telegraph

Asia

Streami, the company behind the popular GOPAX exchange, has received direct funding from Digital Currency Group.

Digital Currency Group, the venture capital firm behind some of the biggest companies in blockchain, has become the second-largest shareholder of Streami, a leading cryptocurrency exchange operator in South Korea.

Barry Silbert, founder and CEO of Digital Currency Group, explained his rationale for backing Streami:

“We expanded our investment in Streami because of their fantastic team and the incredible potential of the digital asset market in South Korea. Streami provides the critical foundation for this market to scale rapidly, and our investment will fuel its position as the most trusted digital asset platform in Korea.”

The investment includes a regional partnership between Streami and Digital Currency Group subsidiary Genesis centered around fixed-term savings products. Streami’s crypto-backed savings product, GOFi, already has over $600 million in user deposits.

The terms of the agreement weren’t disclosed by either company, although it was confirmed that Digital Currency Group has become a major stakeholder. Digital Currency Group was among Streami's earliest investors, having participated in the company's pre-Series A investment round in 2016.

Established in 2015, Streami has become one of the most prominent cryptocurrency infrastructure companies in South Korea. The company operates GOPAX, a local cryptocurrency exchange that currently ranks 66th in terms of trade volumes, according to CoinGecko. GOPAX's 24-hour trading volumes were valued at $146 million as of Wednesday.

Perhaps most notably, GOPAX was the first cryptocurrency exchange to acquire the ISO/IEC 27001 certification and the K-ISMS certification, both in 2017, to become a registered Virtual Asset Service Provider in South Korea.

Although South Korea is regarded as one of the most active cryptocurrency markets in Asia, it also has some of the most stringent regulations. Nevertheless, the country is home to a vibrant cryptocurrency scene, as evidenced by regulators’ recent decision to greenlight a digital asset-focused fund for the first time.

As for Digital Currency Group, the venture capital firm recently announced that it is authorized to purchase up to $750 million worth of shares of Grayscale Bitcoin Trust, which is operated by its wholly owned investment manager Grayscale. The company had announced plans to up its purchases of GBTC shares back in March.

The NFL Gets a Taste of Crypto as Grayscale Partners With the New York Giants

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Grayscale