As the spot price has fallen to almost 30%, institutional investors are returning to Grayscale Bitcoin Trust (GBTC shares) shares. Data from Glassnode suggests.
Grayscale’s flagship fund has seen investors pump in between $10 million to $120 million every week since December 2021. The chart below shows that the week ending February 25, 2021 saw the largest capital inflow, which was close to $140 million.
Institutional Grayscale Investments Since September 2021. Glassnode
High-profile GBTC supporters have not sold off yet
The GBTC trust attracted investment as global markets were facing back-to-back shocks over the past few months. This included a dramatic selloff of technology stocks followed by Russia’s invasion in Ukraine which left many fund managers with a double digit percentage loss.
Cathie Wood’s ARK Next Generation TF (ARKW), which has $478 million in GBTC, crashed nearly 45% year over year, primarily due to its exposure to the sectors that were most affected by the recent market turmoil, such as technology (43.14%), and communication (22.79%).
Weekly price chart for ARKW Source: TradingView
ARKW added 450,000 GBTC shares in November 2021 to its portfolio. Their discounts were almost 17.5%.
According to the Securities filings filed with the U.S Securities and Exchange Commission (SEC), the Morgan Stanley Insight Fund, (CPODX), it held more than 1.5 million GBTC at Sep. 30, 2021. The fund’s year-overyear performance was around 43% as of March 6, 2022.
Both ARKW as well as CPODX performed poorly, with GBTC falling by 43% over the past twelve months. Despite this, neither ARKW or CPODX reported significant sales of GBTC shares.
Institutional Grayscale Investments Source: Swissblock Technologies and Glassnode
Many factors contribute to GBTC’s poor performance, including increased competition from Canadian exchange-traded funds. ETFs offer investors the opportunity to participate in Share Redemptions. This allows funds to liquidate shares based upon demand-supply dynamics.
Grayscale’s parent company Digital Currency Group has tried to lower the discount by purchasing back GBTC shares. ProShares Bitcoin Strategy ETF(BITO) was launched to hold futures contracts. However, this has hampered its efforts. This has resulted in a further dislocation of GBTC’s spot price from Bitcoin.
Grayscale Bitcoin Trust’s discount/premium to Net Asset Value Source: YCharts
Grayscale is currently working on a discount-killer switch. It is trying to convert GBTC to an ETF that is tied to Bitcoin’s prices. Grayscale’s application would be approved by the SEC and the GBTC discount would reset to its current levels.
The SEC has yet to approve a single spot Bitcoin ETF application, citing potential risks related to price manipulation. Comparatively, the regulators in Canada or Europe are more open to physical Bitcoin-backed investments products.
Investor Trip, an investment management company, claimed that the SEC would approve the spot ETF due to pressure from third party supporters.
Grayscale launches a campaign to get public feedback on the Bitcoin ETF application
It wrote that Grayscale would convert the trust to a Spot ETF if approved and that the discount opportunity would cease to exist in its February 14 analysis.
Conservative Income Portfolio analysts argued that GBTC was an investment “destined for zero”, noting that the net-asset value of Bitcoin is not discounted.
It might be relevant in a short-term bounce perspective as a measure sentiment. You should do your research before making any investment or trading decision.
com. You should do your research before making any investment or trading decision.
Eileen Wilson –Technology and Energy
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