Below is an excerpt from a recent issue of Deep Dive, Bitcoin magazine‘s newsletter for premium markets. To be among the first to get this insight and other Bitcoin market analysis delivered to your inbox, sign up now.
The grayscale story is very well known at this point. It is a perpetual trust that provides a workaround for the outrageous regulations of the U.S. Securities and Exchange Commission (SEC) and found a way to allow Bitcoin exposure in institutional capital and broker accounts before almost anyone else.
Where recognition is due, you have to count: The GBTC product was a huge success for Grayscale. The trust currently holds a staggering 651,884 bitcoins, or roughly 3.10% of all bitcoins that will ever exist.
In the later months of 2020, GBTC’s shares traded at a significant premium due to the structure of the trust.
Accredited and institutional investors were able to purchase GBTC shares at NAV (Net Asset Value) as stocks traded at a high premium, but these stocks had to be locked in for six months before they could enter the secondary market.
Investors absolutely got into the trade as the seemingly risk-free arbitrage was too enticing to pass up.
From June 18, 2020 to February 18, 2021, Graycale bought a staggering 284,393 Bitcoin. In context, this is equivalent to 127% of the bitcoin that was mined over the same period.
However, on February 18, 2021, GBTC shares began trading at a discount to NAV and, as expected, new redemptions of GBTC shares were completely suspended. Bitcoin lost momentum as one of the market’s biggest buyers was sidelined, but there’s more to history.
All of GBTC’s shares that have been redeemed and blocked for six months have entered the market in waves, causing an unexpected development in the market.
While Grayscale soaked up Bitcoin on the way up at the premium as retail investors raised the price of GBTC shares in the secondary market, all of those stocks now trading at a discount to the NAV have definitely spotted the demand for Bitcoin for the time being.
In the past seven days, GBTC shares worth 11,512 BTC have been unlocked, some of which have undoubtedly been sold in the market. If you want to invest in bitcoin as an institutional allocator, buy spot bitcoin (which can still be very difficult as there are many legal and regulatory hurdles to overcome) or buy GBTC stocks that are worth $ 10. are traded% to 20% discount on the NAV?
It’s a no-brainer, and in reality, this dynamic has taken a lot of buying pressure off the market.
Over the next two months, GBTC shares worth 82,818 BTC will be unlocked, and as long as GBTC continues to trade at a discount to NAV (which is entirely to be expected), a lot of Bitcoin demand will go towards GBTC, which it won’t reflected in the Bitcoin price.
Would you like to read more from this edition of Deep Dive? The rest can be found here.