Grayscale Bitcoin Trust, the world’s largest institutional Bitcoin fund, is currently trading sharply lower following BTC’s massive decline over the past two months.
One of the biggest victims of Bitcoin’s nearly 40% price drop from its all-time high in November has been the Grayscale Bitcoin Fund (GBTC). Indeed, the “Grayscale Premium” is a closely watched indicator in this sector, as the fund fluctuates around the price of the asset itself.
According to Bloomberg Intelligence’s James Seyffart, the GBTC fund is currently trading down more than 26%. This means that with the current price of BTC ($42,000), the price of the fund would equal $30,870 taking into account the discount. The $27 billion has fallen nearly 17% since the start of 2022, outpacing the nearly 9% drop Bitcoin has experienced.
The analyst also explained that GBTC’s returns could theoretically be higher than the discount:
“Many think that means a 26% return if the fund converts to an ETF. But the yield is indeed much greater. Eliminating the 26.5% discount would be analogous to a security appreciating from $73.50 to $100, or a 36% return”.
Speculation on a spot Bitcoin ETF
Investors believe the discount will ease if Grayscale receives approval from the U.S. Securities and Exchange Commission (SEC) to convert its GBTC fund to a spot ETF.
In addition, Mr. Seyffart clarified that there is no guarantee that this discount will be eliminated or that it will not worsen. Moreover, he pointed out that the current scenario excludes risks and price movements from the asset itself.
“But at this point $GBTC is essentially a leveraged bet on a Bitcoin ETF endorsement in my opinion.”
Grayscale’s Bitcoin fund does not allow the supply of stocks to fluctuate in response to demand, which is responsible for the premium and discount. Brent Donnelly, Chairman of Spectra Markets, said “GBTC continues to break hearts as the discount increases.” Furthermore, he pointed out:
“GBTC is essentially a binary bet on a physical ETF at this point. It’s tempting, but in the same way value traps”.
Mr. Seyffart also declared that there are several factors driving the increase in the discount, including the ease of directly buying BTC, the overinflation of assets by those taking advantage of the premium, and the prevalence of retail investors who are unaware the mechanism of the fund.
Bitcoin Price Outlook
The spot price of Bitcoin fell again on the morning of January 20. Currently, the asset is trading at $42,060 according to CoinGecko.
BTC is down nearly 11% in the past month, and the market is still showing bearish sentiment. BTC price is still holding above its long-term support at $40,000. But, a fall to this level could quickly become very chaotic.
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