Grayscale Bitcoin Trust (GBTC) premium fell to its lowest level ever

Since trading negative for almost 2 months, the Grayscale Bitcoin Trust (GBTC) premium has plummeted to -14.21%. Historically, GBTC has been trading with a high premium relative to base Bitcoin, hitting an average premium of 15.02% since the fund’s inception. But as competition increased and companies created cheaper, more accurate financial products, GBTC’s appeal dropped significantly. Its premium is clear for that.

Premiums GBTC | Source: Glassnode

Why does the Grayscale Bitcoin Trust premium continue to decline

By the end of 2020, when the price of Bitcoin nearly doubled, investors were willing to pay a hefty premium for exposure to the major cryptocurrency. This resulted in a sharp increase in the cash flow, leading to the number of GBTC shares soared to 692 million at that time. However, the fund does not allow conversion or redemption, meaning stocks can only be created, not destroyed.

This is not a problem as GBTC’s market demand allows for a continuous increase in GBTC’s supply. But with Bitcoin’s recovery currently struggling, there is a clear imbalance between supply and demand. This is exacerbated by profit-taking organizations, as their six-month cutoff period ends.

Another reason why the Grayscale Bitcoin Trust premium continues to decline is due to the launch of new financial products based on Bitcoin and exchange-traded funds (ETFs).

Major investment banks like Goldman Sachs and Morgan Stanley started offering Bitcoin futures products earlier this year, with other banks also showing their interest. Just yesterday, asset management giant Fidelity filed with the SEC to create its own Bitcoin ETF fund for US investors. With sky-high management fees and massive price slippage that undermine the fund’s credibility, GBTC is sure to lose to newer, more efficient funds.

Nate Geraci, Chairman of the consulting firm ETF Store, shared his thoughts on the matter: “The annoyance for GBTC investors is that competition erodes demand for the product, may lead to lower premiums or even discounts ”. While the Grayscale Bitcoin Trust retains its title as the largest Bitcoin fund with an estimated $ 11 billion of assets under management (AUM), it seems only a matter of time until the fund goes wrong. time.

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