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 grayscale is drying up
On Sept. 23, the $12.55 billion closed-end trust was trading at a discount of 35.18%, according to the latest data.
For investors, GBTC has long been a great alternative to gain exposure in 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 traded at a steep premium to spot Bitcoin prices. But it started trading at a discount after the launch 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 its heavily discounted prices compared to spot Bitcoin.
Grayscale’s efforts to convert its ETF trust failed after the Securities and Exchange Commission’s (SEC) rejection in June. In theory, the SEC’s approval could have reset GBTC’s discount to current levels, generating profits for those who bought the stock at cheaper rates.
Grayscale sued the SEC over the rejection of its ETF application. But realistically, the court could take years to reach a verdict, meaning investors would be stuck with their discounted GBTC shares, which have fallen in value more than 80% from their peak in November 2021. around $55.
Additionally, GBTC’s 12-month adjusted Sharpe ratio fell to -0.78, showing that the stock’s expected return is relatively low compared to its dramatically high volatility.
Simply put, institutional interest in Grayscale Bitcoin Trust is drying up.
A warning for the spot price of Bitcoin?
Grayscale is the world’s largest passive Bitcoin investment vehicle by assets under management. But it does not necessarily have a strong influence in the BTC spot market after the emergence of rival ETF vehicles.
For example, crypto investment funds attracted a combined total of almost $414 million in 2022, according to the weekly CoinShares. report. In contrast, Grayscale saw outflows of $37 million, which include its Bitcoin, Ethereum and other token trusts.
Instead, daily Bitcoin spot price fluctuations are heavily influenced by macroeconomic factors, at least for now.
A stronger US Dollar is also hurting Bitcoin’s upside outlook, given their consistent negative correlation over the past year in a higher interest rate environment.
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For example, the US dollar index (DXY), which measures the strength of the greenback against a basket of major foreign currencies, soared to over 113, its highest level in 20 years, on September 23. Similarly, yields on 2-year and 10-year US Treasuries climbed to 4.21% and 3.69%, respectively.
However, several on-chain metrics suggest Bitcoin may soon bottom based on historical data. However, from a technical standpoint, the price of BTC is still at risk of declining towards the $14,000-$16,000 area, according to independent Crypto analyst il Capo.
It is more likely that [Bitcoin] will reject at first resistance 20300-20600,” he said quoting the chart above, adding:
“Wait for the rebound, then exit all markets.”
Other Bitcoin analysts have set even lower targets, such as $10,000-$11,000, as this is a historic high volume range.
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