At this point there is no doubt that 2020 has been one of the most positive years for Bitcoin, and especially for the financial products of this cryptocurrency that are traded on the stock market. This is illustrated in a recent report by BitMEX, which also reveals that competition in this market is increasing along with the price of the asset.
BitMEX data confirms the trend already seen in the bitcoin institutional market, Grayscale is the clear leader in this market by positioning its products as investor favorites. The publicly traded company is the largest watchdog of BTC, registering about 550,000 bitcoins in its vaults by the end of 2020, representing 2.6% of the total supply of bitcoins the network plans to issue.
The company reported its highest asset growth in 2020, despite the fact that the Bitcoin Trust Fund (GBTC US) was shown in 2013. Total assets received in this period were $ 10.5 billion, according to BitMEX. . In this way, it is the most successful bitcoin financial product traded on the stock exchange this year, though 2020 is also characterized by the launch of other specialized funds in this cryptocurrency.
Bitcoins in Grayscale custody have risen sharply since January 2020. Source: BitMEX.
For example, two German enterprises made their first appearance this year: VanECK exchange-traded fund (ETN) and Deustche Borse Bitcoin exchange-traded product (ETP). BitMEX researchers note that these are two of 2020’s strongest products, even more so than Grayscale’s own fund, and could become major competitors in the market in the future.
“These new listed products are likely to gain significant market share,” the report said. In addition to these promising projects, BitMEX targeted four other Bitcoin financial products that are also traded on the capital markets. In this sense, the company concludes that competition in this sector continues to increase in the future, Grayscale could lose its leadership in the hands of entities with a long market tradition.
“If the price and popularity of Bitcoin continues to rise, it is inevitable that industry giants like Black Rock and Vanguard will finally get into the game,” the report found. This outlook stems from the idea that while the Grayscale fund is very popular, it is a flawed financial product with many problems.
Bitcoin Grayscale Trust is not as good as it sounds
BitMEX researchers consider Grayscale financial products to be faulty for two compelling reasons: their unusual asymmetry and their very high premium. Let’s start with the first feature, the report states that Grayscale allows you to create trust units very easily, but it has no redemption mechanism. That is, no investor in this fund can exchange its units for bitcoin.
This means that Bitcoin Trust Grayscale works in one direction only. Investors can subscribe to trust units and buy bitcoins, but then they cannot cancel those participation fees and receive bitcoins in return. The operator – who in this case is Grayscale – can always buy bitcoins, but never sell them.
For some users, this practice seems positive, as it affects the rise in the price of bitcoin by holding it (keeping it deposited so that it increases its value). Anyway, It is limiting when investors want to take control of their money.
In terms of premium, Grayscale has one of the highest operating costs in the market. The company’s bitcoin products trade at a 23% premium over NAV, but have traded at a 133% premium. The high cost of these operations is mainly due to the demand for bitcoins and the difficulty of purchasing regulated bitcoins, causes that lead institutional investors to pay these premiums.
Graduating trusts for cryptocurrencies like Bitcoin Cash, Litecoin and Ethereum carry even more extreme premiums, the BitMEX report points out. For example, a product Ethereum is currently trading at a premium of 121% and Litecoin has reached premiums of nearly 3,000% above its net asset value. While the researchers believe premiums will fall due to increased competition or lower demand for bitcoin products, they still believe that these cups negatively affect Grayscale.
Litecoin trades with Grayscale for a premium of up to 3,000% over the NAV. Source: BitMEX.
And whether, if you compare the premiums of other bitcoin products traded on the stock market, the difference is significant. For example, Coinshares Bitcoin Tracker One products have a 0.3% premium and the WisdomTree Bitcoin ETP is trading at a 0.1% premium.
Bitcoin ETP Germany, one of BitMEX’s promising products of the year, has a 1.1% premium; while Bitcoin ETN by VanEck is trading at a 0.4% premium. Furthermore, units of both products can be created and redeemed without delay. They are also open markets that are physically reproductive. All these details distract both companies against the Grayscale fund, which has the fact that it is listed in the US in its favor.
Given these features, BitMEX is betting that VanEck’s size companies, which manage more than 50 billion dollars globally, can gather more and more traction in the bitcoin market. Similarly, the report concludes that Bitcoin’s success in 2020 and possibly next year may continue to be driven by institutional investments, especially those from the United States. A more than positive outlook for the cryptocurrency created by Satoshi Nakamoto.