Shares in $32 billion Trust are trading at a discount to the price of Bitcoin for the first time in over five years.
Some analysts are concerned that this could depress the price of Bitcoin. If this trend continues, the worry is that Grayscale might stop buying up Bitcoin. And as one of the biggest Bitcoin buyers, a lapse in demand could sink its price.
Peter Schiff, a gold bug and noted crypto critic, said on Twitter: “If this persists the Trust will have no more inflows and will therefore not be buying any more Bitcoin. Without Grayscale, the biggest daily buyer, where will the new buyers come from to support the price?”
He continued: “The market needs new buyers coming in to allow existing holders who need actual cash to buy something to get out.” But analysts tell Decrypt that Schiff's take is overblown, and the dip in price may be a normal feature of the market.
What is the Grayscale Bitcoin Trust?
The Grayscale Bitcoin Trust is a humongous pool of privately-invested money that Grayscale, a crypto fund manager, uses to snap up Bitcoin. Grayscale then sells shares in the Trusts on public over-the-counter desks.
In the absence of a Bitcoin Exchange-Traded Fund in the US, Grayscale’s trusts are one of the only ways that US investors can buy Bitcoin on the stock market.
Investors might prefer stock markets over crypto exchanges for several reasons. First, it makes Bitcoin investments eligible for tax-sheltered accounts, such as pension accounts.
It also makes it easier for people to trade crypto without actually dabbling in crypto itself; navigating the crypto market is still cumbersome and complicated to those unfamiliar with trading it.
And Grayscale’s trusts are regulated with the US Securities and Exchange Commission; crypto exchanges aren’t as regulated.
For the convenience, Grayscale charges investors management fees of about 2%, and its trusts are so popular that shares in them usually trade at a premium—each share is worth more than the Bitcoin that investment is used to buy. In other words, investors that use Grayscale are overpaying for Bitcoin.
Since yesterday, Grayscale has traded at a -0.68% discount to the real price of Bitcoin, according to Grayscale’s site and yCharts, a financial metrics site.
The Grayscale $GBTC premium is now negative for the first time since 2015.
Sustained GBTC discounts could cause real pain across crypto lending markets. pic.twitter.com/at4MNak3jW
— Ryan Selkis (@twobitidiot) February 24, 2021
Darius Sit, CIO of QCP Capital, said there’s nothing to worry about. “Most ETFs trade at discount to NAV,” he said. “It’s not a big deal.”
Sit said that plenty of large trading desks wanted to make the most of high premiums. That's often to get around tax issues; trading GBTC allows them to hold greater positions in Bitcoin, he said.
The catch is that Grayscale will issue these shares in GBTC in about six months. So, in six months, the lending desk could get that GBTC, which they expect to trade at a premium, and use the money to buy back the Bitcoin for a profit.
So when the premium drops, that’s just trading desks cashing out their premiums, he said. “GBTC trading at a discount to the price of Bitcoin doesn’t necessarily indicate bearish outflows,” he said.
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