The GBTC premium remains negative, indicating that Bitcoin price sentiment is still sluggish?

Bitcoin (Bitcoin) facing difficulty Breaking through the $40,000 mark again After a short crossing on May 26. The current trading price of the cryptocurrency is approximately US$36,000, a 44% drop from the historical high of US$64,889 set on April 14. The market as a whole is an institutional demand.

One of the key investment tools for setting demand is the Grayscale Bitcoin Trust (GBTC). Grayscale Investment’s BTC Trust is one of the most important investment management companies for institutions that are addicted to digital currencies. The trust allows investors to access the price of Bitcoin through regulated traditional investment tools without directly buying, storing and custody of their tokens.

GBTC is publicly traded on OTCQX, which is an over-the-counter market that supports stock trading. GBTC is currently trading at US$30, a 46% drop from the historical high of US$58.22 set on February 19.

Each share represents 0.00094716 BTC. This share tracks the market price of Bitcoin and does not include applicable fees and expenses. It has a minimum holding period of six months and a minimum investment requirement of US$50,000, so it is not suitable for retail investors.

The gray BTC premium over three months is negative

Due to the impact of the needs of institutions that support Grayscale and the fact that it is a regulated way to gain exposure to Bitcoin, the transaction price of its products is usually higher than the net asset value (NAV) or current value of holdings. GBTC premium refers to the difference between the value of the assets held by the trust and the market prices of these assets.

Before February 23 this year, this difference has been a positive number, indicating that the premium reached a record high of 122.27% on June 6, 2017 four years ago. Since the end of February this year, the premium has turned into a discount and reached a record low of -17.89% on May 16.

Since this difference is driven by market supply and demand factors, an increase in the GBTC premium indicates an increase in the amount of Bitcoin flowing into the trust, while a decrease in the premium turns into a discount indicates a decrease in the BTC inflow Means that GBTC is traded at a discounted price To the spot price of Bitcoin.

Cointelegraph and Nikita Ovchinnik, Chief Business Development Officer of 1inch Network, a decentralized cryptocurrency exchange, discussed the impact of changes in the GBTC premium trend. Ovchinnik said: “It seems that the GBTC premium is a good indicator of medium-term market sentiment. The premium became negative at the end of April. Although digital assets have experienced a partial boom, the lack of institutional interest heralds a decline in market value in May.”

This trend is consistent with the amount of Bitcoin held by Grayscale Trust, as it has been gradually increasing since January 13, and reached a record high of 655,702.89 tokens on March 2. Since then, its Bitcoin reserves have been as of June 4, and for the first time in history, it has gradually declined to the current US$652,410.55. The trust’s current asset management scale is US$24.27 billion.

The premium allows investors to take advantage of this opportunity through arbitrage opportunities. One method is to allow investors to borrow Bitcoin and use it as an exchange for GBTC stock. After the six-month lock-up period is over, investors can sell shares in the secondary market at the current premium.

They use the funds received on this exchange to buy and return the borrowed BTC tokens to the lender. In this process, investors will collect the price difference caused by the premium into their pockets, thus successfully executing their arbitrage. Ovchinnik further believes:

“GBTC is one of the most convenient and safest entry points for institutional funds. It seems that their demand is one of the driving factors in early 2021, but it has slowed down, and we no longer hear new entities claiming that they have decided to diversify and Attempting to hold blockchain assets.”

In traditional financial markets, GBTC premiums/discounts can be compared with the pricing of closed-end mutual funds. Ideally, since the number of bitcoins in the trust is publicly disclosed, the value of the trust should be exactly equal to that value. Due to the aforementioned premium/discount factors, the value is not the same.

Bryan Routledge, associate professor of finance at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph that “the premium reflects its status as a’regulated’ alternative to owning Bitcoin” and, therefore, “investors will pass and believe.” Routledge also Added that the GBTC premium should not be considered as an additional cost:

“If you buy and sell and the premium is the same, the impact is small. Recently, there are more easier and more comfortable ways to access Bitcoin, so the gray premium has dropped. It is now discounted relative to Bitcoin NAV.”

Although GBTC trading is a discount to the net asset value, there are some positive signs of recent trends. GBTC discount rebounded sharply From May 21 to May 24, it went from -21.23% to -3.86%, and then dropped to around -12% on June 3. This shows that institutional interest is rising as the price of Bitcoin has fallen.

The direction of GBTC premium/discount trend can be used as an indicator of asset market sentiment, especially among institutional investors.

Bitcoin ETF is a strong competitor to GBTC

In addition to GBTC, another way for institutional and retail investors to obtain the risk of Bitcoin price fluctuations through regulated channels is Bitcoin exchange-traded funds.

On February 18th, Purpose Investments launched North America’s first Bitcoin ETF, and its assets under management (AUM) rose to Over 500 million USD in a week Subsequently cross 1 billion U.S. dollars in the same month. As of June 4, the ETF’s asset management scale is currently US$714.6 million or 19,407.63 Bitcoin, and it uses the stock code BTCC.

In addition to the BTC ETF of the target company, Evolve ETF also launched its own Bitcoin ETF on February 19 with the stock code EBIT. Although it has lost the first-mover advantage obtained by the ETF of its purpose, its current assets under management are US$78.52 million, which only accounts for more than 12% of BTCC’s current AUM. Overall, there are several well-known ETFs listed on the Toronto Stock Exchange.

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It is worth noting that the launch of these ETFs coincided with the decline in the GBTC premium, which eventually turned into a discount. Routledge mentioned why this is happening, “ETF is a cheaper (transaction cost, fee) way to expose Bitcoin. Therefore, the gray premium has fallen-reflecting good old-fashioned competition.”

The management fee for the GBTC Trust is 2%, while the management fee for the target BTC ETF is 1%, while the fee for the Evolve ETF is lower, at 0.75%.Due to the success of the existing Canadian ETF, the ETF market is so attractive that Grayscale has also confirmed that it will become Turn its products into ETFs.

But before that, they need to obtain elusive approval from the US Securities and Exchange Commission. The company has applied, Including Fidelity and flyover. For Ovchinnik, the existence of these new products “is very important in the long run, even though we may not see changes immediately.”

related: In the long term?When Bitcoin plummets, institutions stay strong

If the US Securities and Exchange Commission approves any of the several crypto ETF applications it has received, the competition for BTC ETF market share will intensify. Until then, GBTC was still one of the main indicators of institutional interest, with ETFs following closely behind and fighting for the same market participants.

In addition, since GBTC is still closed for new investments before September this year, the current GBTC discount is not expected to change drastically. However, the positive trend that appears between May 21 and May 24 may bring benefits to the lack of institutional demand. The news feels on the market.