There is a reason why Grayscale Bitcoin Trust (GBTC) emerged as a benchmark for measuring institutional interest in Bitcoin (BTC).
Grayscale is no longer the only option for investors
The digital currency investment product was one of the only ones to offer hedge funds, endowments, pension funds and family offices a way to gain exposure to Bitcoin without the need for them to own the digital asset themselves.
Thus, an increase in capital inflows into GBTC, such as the one reported last year, in which Wall Street investors deposited about $ 18.2 billion in the fund, served as a metric to measure the growing institutional interest in the digital currency sector. In contrast, a declining capital inflow reflected an institutional withdrawal or a profit-taking, such as that which occurred since the first quarter of 2021.
The chain analysis service Skew reported on Thursday that GBTC stopped attracting new investment after February 2021. Capital inflows stopped just as GBTC began trading with a negative premium over its net asset value, or NAV. NAV represents the underlying market value of the shares.
Money stops flowing to Grayscale Bitcoin Trust when your cousin turns negative. Font: Skew
The GBTC premium rose 30% earlier this year. But the latest bias chart points to -11.40%. GBTC’s premium on its NAV was a low of 40.20% at its session low, its worst level in history.
Meanwhile, the GBTC premium recorded slight recoveries in early April after Grayscale announced its intentions to convert its trust structure into a listed fund (ETF). The New York signing decision came as a result of growing competition from newly launched ETFs in Canada, primarily because they offered better expense ratios than grayscale ones.
For example, Purpose, the world’s first physically liquidated Bitcoin ETF, emerged with a 1% expense rate. Evolve and CI Galaxy, other Canadian Bitcoin ETFs, offered 0.75% and 0.40%, respectively. Meanwhile, the grayscale spending rate increased by 2%.
Commercial rivalries with Canadian Bitcoin ETFs could also have drowned out capital inflows into GBTC. The purpose, for example, raised $ 1 billion in capital a month after its launch in February, reflecting that demand for Bitcoin investment products remained high despite a drop in GBTC inflows.
Musk shook Wall Street Bitcoin investors
The period also saw the Bitcoin cash rate rise further in the Elon Musk factor. Following Tesla’s revelation that it had $ 1.5 billion in BTC on its balance sheets, the cost of buying a Bitcoin rose from just $ 38,057 on February 8 to as high as $ 64,899 on April 14, and the speculators believe more corporations would replace it. part of its cash holdings with the flagship digital currency.
But the GBTC premium remained negative over the course of the Bitcoin price spike from February to April. Its missing 40.20% low appeared when BTC / USD started to lose its gains due to profit taking, China’s ban on digital currencies and rumors of Tesla’s Bitcoin dump.
Bitcoin’s sense of correction accelerated after Musk criticized the digital currency for its carbon footprints. Source: BTCUSD at TradingView
Daniel Martins, founder of independent research firm DM Martins Research, highlighted the decline as a sign of Wall Street’s declining interest in Bitcoin-related investments, especially after the digital currency became a clear victim. of Musk’s anti-Bitcoin tweets in mid-May, losing more. of half of its valuation at a later time.
Martins further noted that Grayscale reported annualized returns 500% higher than Nasdaq, but its correction was also worse than the Great Recession of 2008: 82% versus 17% on Nasdaq. This turned Grayscale’s bitcoin investment product into an “ultra-leveraged bet,” accompanied by a lower risk-adjusted return. The analyst added:
“GBTC’s volatility has been almost nine times higher than that of the Nasdaq: 145% compared to 17%.”
Grayscale ETFs in 2021?
Martins ’statements highlighted the chances that the GBTC premium could face more downward movements as investors look for more stable alternatives to Bitcoin’s ongoing price correction.
In addition, its rivalry with other digital currency investment alternatives, including digital currency custody services that offer institutional investors to own real cryptocurrencies at a cheaper rate, further risks limited capital inflows.
ETF.com analyst Sumit Roy wrote that the possible transition of the grayscale fund to an ETF ends its 2% rate days as it would need to compete with an army of other ETFs, led by firms such as bitwise, Vanguard, Fidelity, CBOE and others. . Added:
“However, no matter what happens, GBTC is poised to be a force and will likely remain so no matter how the cryptocurrency space evolves.”
But whether US markets would have access to a Bitcoin ETF in 2021 remains a mystery in itself. The Financial Times reported earlier this week that most ETF applications accumulate dust when the chairman of the US Securities and Exchange Commission. U.S. Gary Gensler reiterated concerns about investor protection in encryption markets.
“I hope [delay] let’s go through all of our presentations, to be honest, ”said Laura Morrison, CBOE’s global director of listings.