The largest Bitcoin fund just hit a record -35% discount — a warning for the BTC price?
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 compared to the value of its underlying assets.
Institutional interest in shades of gray is drying up
On Sept. 23, the $12.55 billion closed-end trust was trading at a 35.18% discount, according to the latest data.
For investors, GBTC has long served as a great option to gain exposure to the Bitcoin market despite its 2% annual management fee. This is primarily because GBTC is easier to hold for institutional investors because it can be managed via a brokerage account.
For most of its existence, GBTC traded at a hefty premium to detect Bitcoin prices. But it began trading at a discount following the debut of the first North American Bitcoin exchange-traded fund (ETF) in Canada in February 2021.
Unlike an ETF, the Grayscale Bitcoin Trust does not have a redemption mechanism. In other words, GBTC shares cannot be destroyed or created based on fluctuating demand, which explains the heavily discounted prices compared to spot Bitcoin.
Grayscale’s attempt to convert its trust into an ETF failed after the US Securities and Exchange Commission’s (SEC) rejection in June. In theory, the SEC’s approval could have reset GBTC’s discount from today’s level to zero, extracting profits for those who bought the shares at cheaper prices.
Grayscale sued the SEC over the rejection of the ETF application. Realistically, however, it could take years for the court to issue a ruling, meaning investors will be stuck with their discounted GBTC shares, whose value has fallen by more than 80% from its November 2021 peak of around $55.
GBTC’s 12-month adjusted Sharpe ratio has also dropped to -0.78, showing that the expected return from the stock is relatively low compared to its significantly high volatility.
Simply put, institutional interest in Grayscale Bitcoin Trust is drying up.
A warning for spot Bitcoin price?
Grayscale is the world’s largest passive Bitcoin investment vehicle by assets under management, but it doesn’t necessarily have a strong influence on the spot BTC market following the rise of rival ETF vehicles.
For example, crypto investment funds have collectively attracted nearly $414 million in 2022, according to CoinShare’s weekly report. In contrast, Grayscale has seen outflows of $37 million, which includes their Bitcoin, Ether and other tokens trusts.
Instead, daily fluctuations in the spot price of Bitcoin are heavily driven by macro factors, at least for now.
A stronger US dollar also hurts Bitcoin’s upside prospects, given their consistent negative correlation over the past year in a higher interest rate environment.
Related: BTC mining company Compute North files for bankruptcy
For example, the US dollar index (DXY), which measures the dollar’s strength against a basket of top foreign currencies, climbed above 113, its 20-year high, on September 23. year US government bonds have risen to 4.21% and 3.69% respectively.
However, several on-chain calculations suggest that Bitcoin may bottom out soon based on historical data. However, from a technical point of view, BTC’s price still risks a drop towards the $14,000-$16,000 range, according to pseudonymous independent analyst “il Capo of Crypto.”
“It’s more likely that [Bitcoin] will reject at the first resistance 20300-20600,” he tweeted while quoting the chart above, add:
“Wait for bounce, then exit all markets.”
Other Bitcoin analysts have been tossing around even lower targets like $10,000-$11,000, due to this being a historically high volume range.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
