Currently holding 3.12 percent of the total Bitcoin (BTC) supply, or more than 640,000 BTC, cryptocurrency fund Cryscale Bitcoin Trust (GBTC) is trading at a significant discount to the value of its underlying assets.
Institutional interest in Grayscale will dry up
On September 23, the $12.55 billion closed-end trust was trading at a 35.18% discount, according to the latest data.
For investors, GBTC has served as a good option to gain exposure in the Bitcoin market despite its 2% annual management fee. This is mainly because GBTC is easy for institutional investors to hold as it can be managed through a brokerage account.
For most of its existence, GBTC traded at a significant premium to Bitcoin prices. But it began trading at a discount in February 2021 after Canada’s first North American bitcoin exchange-traded fund (ETF) launched.
Unlike an ETF, the Greyscale Bitcoin Trust has no redemption mechanism. In other words, GBTC shares cannot be destroyed or created based on fluctuating demand, which explains the steeply discounted price compared to Bitcoin.
The effort to convert the grayscale trust into an ETF failed after the Securities and Exchange Commission (SEC) rejected it in June. In theory, the SEC’s approval could have fixed GBTC’s discount from its current level to zero, giving away the profits to those who bought the shares at a bargain price.
Grayscale sued the SEC for rejecting the ETF’s application. But realistically, the court could take years to rule, meaning investors would be stuck with discounted GBTC shares, whose value has fallen more than 80% from its peak of around $55 in November 2021.
Also, GBTC’s 12-month adjusted Sharpe ratio dropped to -0.78, indicating that the stock’s expected return is low compared to its high volatility.
Simply put, institutional interest in Grayscale Bitcoin Trust is drying up.
Bitcoin price alert for space?
Greyscale is the world’s largest passive Bitcoin investment vehicle by assets under management. But after the arrival of rival ETF vehicles, the spot will not have a strong impact on the BTC market.
For example, Crypto investment funds have attracted a total of nearly $414 million in 2022, according to CoinShares Weekly. In contrast, Greyscale saw $37 million in outflows, including bitcoin, ethereum and other trust tokens.
Instead, the day-to-day volatility of bitcoin prices everywhere is driven by macro factors, at least for the time being.
A strong US dollar will hurt Bitcoin’s bullish prospects while a high interest rate environment creates a negative correlation similar to last year.
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For example, the US dollar index (DXY), which measures the greenback’s strength against a basket of major foreign currencies, rose above 113, a 20-year high on September 23. U.S. Treasury notes rose 4.21% and 3.69%, respectively.
Many on-chain metrics, however, are suggesting that Bitcoin may soon go lower based on historical data. However, from a technical point of view, the price of BTC still risks a drop to around $14,000-$16,000, according to independent analyst Il Capo of Crypto.
It could be more. [Bitcoin] Initial resistance at 20300-20600 will be rejected,” he said, referring to the chart above.
“Wait until now, then exit all markets.”
Other Bitcoin analysts have dropped targets as low as $10,000–$11,000, which is a historically high volume range.
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