Institutional investors are piling back into shares of Grayscale Bitcoin Trust (GBTC) as the discount to the spot price has risen to almost 30%data from Glassnode shows.
Since December 2021, investors have poured between $10 million and $120 million into Grayscale’s flagship fund in select weekly sessions. For its part, the largest inflow of capital —which amounts to almost 140 million dollars— happened in the week ending February 25, as shown in the following graph.
Still no sales among high-profile GBTC investors
The GBTC trust attracted investment as global markets faced back-to-back shocks in recent monthsincluding a dramatic sell-off in tech stocks, followed by Russia’s invasion of Ukraine, which left many fund managers with a double-digit percentage loss.
For example, Cathie Wood’s ARK Next Generation ETF (ARKW), which holds $478 million in GBTC, plunged nearly 45% year-on-year.mainly due to its exposure to the sectors that suffered the most during the recent market turmoil, such as technology (43.14%) and communications (27.99%).
However, In November 2021, ARKW added more than 450,000 GBTC shares to its portfolio, when its discounts reached almost 17.5%.
In the same way, the Morgan Stanley Insight Fund (CPODX) held over 1.5 million GBTC as of September 30, 2021according to its securities filings with the United States Securities and Exchange Commission (SEC). Its year-on-year return as of March 6, 2022 was around 43%.
Both ARKW and CPODX underperformed GBTC, which fell 43% in the last 12 months. Nevertheless, neither ARKW nor CPODX disclosed any significant GBTC share sales.
Interest in ETFs?
There are many factors contributing to poor GBTC performanceincluding growing competition from exchange-traded funds (ETFs) in Canada. Unlike the GBTC, ETFs allow investors to redeem sharesa process by which a fund can destroy stocks based on the dynamics of supply and demand.
Digital Currency Group, the parent company of Grayscale, has attempted to reduce the discount by buying back shares of GBTC. But his efforts have been further hurt by the launch of the ProShares Bitcoin Strategy ETF (BITO), which holds futures contracts. This has ended up destabilizing the GBTC price beyond the bitcoin spot price.
Now, Grayscale has been working to end the discount, through its attempts to convert GBTC from a trust fund to an ETF pegged to the price of bitcoin.. If the SEC approves Grayscale’s request, it would cause GBTC’s discount to be reset from its current discount levels to zero.
Nevertheless, The SEC Has Not Approved a Single Bitcoin Spot ETF Application Alleging Risks Related to Price Manipulation. Instead, regulators in Canada and Europe have been more receptive to investment products backed by physical bitcoin.
The investment management company Investor Trip claimed that the SEC would end up approving the cash ETF “due to pressure from supporters”.
“If approved, Grayscale will convert the trust to a spot ETF and the discount opportunity will no longer exist”he wrote in his analysis published on February 14.
Conversely, analysts at Conservative Income Portfolio said GBTC is an investment that is “destined for zero”noting that his discounting of bitcoin’s net asset value “isn’t really relevant.”
“It could be relevant from a shorter-term rebound perspective as a measure of sentiment.”
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