Greater Crypto Fund’s 40% Premium Evaporations During Meltdown

Bitcoin’s biggest hefty markup is bursting amid concern that investors are racing for the exit amid the cryptocurrency dive this week.

Grayscale Bitcoin Trust $ 22 billion (ticker GBTC) fell over 15% this week, beating Bitcoin weekly losses by 11%. As a result, GBTC’s premium to its underlying holdings – which increased to 40% in December as cryptocurrency increased – has fallen to just 2.8%, the lowest since March 2017, according to data compiled by Bloomberg.

The size of the GBTC collapse and its eroding premium suggests investors are dumping their positions, according to Mohit Bajaj from WallachBeth Capital.

“When there is a big move to the downside, offers tend to fall and that premium falls down because investors are trying to get out of jobs,” said Bajaj, director of WallachBeth ETFs. “Because of this, the arb band is tightening because arbitrators are selling their hedge faster than they can download the GBTC they buy back in the market.”

GBTC's premium to net asset value falls to its lowest since 2017

Seres Lu, an outside spokesman for Grayscale Investments, did not immediately respond to a request for comment.

Bitcoin climbed to a record high of nearly $ 42,000 earlier this month, building on the huge gains of 2020. However, the digital asset has collapsed this week, retention is worried that the speed of its hot-red rally cannot be maintained.

For Nate Geraci, president of the investment advisory firm in the ETF Store, the premium dive can be attributed to a combination of Bitcoin’s sharp pull-down occurring at the same time as a massacre of GBTC shares left their six-month lock-in period.

In addition, says Geraci, the trust is seeing more competition, including from new Bitwise products as well as one from Ospreys, which charges a lower fee. “Extra competition is likely to crimp demand for GBTC, putting downward pressure on any existing premium,” he said, adding that the Bitcoin trading-exchange fund could help resolve the issue.

GBTC tends to trade for a premium, given that the trust does not allow the redemption of shares and demand has flourished. While such diversions occasionally crop up in ETFs, specialist traders called authorized participants step in to arbitrate the gap away by creating or redeeming shares of the ETF. No such mechanism exists for GBTC.

So far the Securities and Exchange Commission it refused to approve the Bitcoin ETF, despite repeated applications filed since 2013. But some industry watchers, point out the SEC’s new leadership in the Biden administration says they are hopeful one could be approved by the regulator as early as this year.

According to James Pillow, portfolio manager at Moors & Cabot, GBTC’s extreme premiums could disappear as more crypto-focused investment vehicles enter the market.

“It has had no real competition,” he said. “That increased supply should ease the need for extreme premiums, and if a similar ETF is created (against a trust), it should eliminate all premiums or meaningful discounts.”