The Implications of the Grayscale Discount

The arrival of institutional investors into Bitcoin has been the game-changer. The last Bitcoin halving was a year ago, and since then, these funds have bought more Bitcoin than the miners have generated. Of all the reasons why Bitcoin has been strong over recent months, institutional demand ranks high on the list.

More buyers than sellers

Source: Bloomberg. ByteTree Asset Management as described.

The fund framework

The USA has the largest fund, the Grayscale Bitcoin Trust (GBTC US), which owns circa 646,000 BTC, followed by Sweden, which hosts the two Bitcoin Tracker One funds (COINXBT SS & COINXBE SS) managed by CoinShares, launched pre-2015. CoinShares recently listed in Sweden with an $840 valuation and hold approximately 57,000 BTC.

Source: Bloomberg; Bytetree Asset Management.

ETFs versus closed-ended funds

All of the European Bitcoin funds are exchange-traded products known as ETPs. These are basically ETFs, but traditionally in Europe, when an instrument is complex, it gets a P rather than an F in the description.

The power of a premium

A premium means investors are prepared to pay more for the exposure to the asset than the assets are worth. They might do that because there is limited choice (no other funds) or just hype (buy Bitcoin). Until recently, GBTC was one of the few ways for US investors to buy Bitcoin via a fund. And there was a dose of hype.

The Grayscale Premium erodes

Source: Bloomberg; Bytetree Asset Management. GBTC premium to NAV and BTC held since 2015.

The importance of GBTC

As I wrote earlier, institutions have purchased 380,644 BTC since last May. Of that total, around 308,446 BTC came via GBTC. That is, 81% of the total institutional flows have come via GBTC, which now trades at a discount. A discount means institutions will no longer subscribe for new shares, which means GBTC will no longer acquire new BTC.

Applied data for digital asset investors. ByteTree provides real-time data, fundamentals, technical and deep blockchain market analysis for Bitcoin, and more.

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