Why is Wall Street less and less interested in the Grayscale Bitcoin Trust?


There is a reason Grayscale The Bitcoin Trust (GBTC) has become a benchmark for measuring institutions’ interest in Bitcoin (Bitcoin).

Grayscale is no longer the only choice for investors

Digital currency investment products are one of the only products that provide hedge funds, endowment funds, pension funds and family offices with a way to access Bitcoin without having to own digital assets.

As a result, the capital flowing into GBTC continues to increase-for example Reported last year, Of which Wall Street investors deposited about 18.2 billion U.S. dollars in the fund-as an indicator of the institution’s growing interest in the crypto industry. Conversely, the decline in capital inflows reflects institutional exits or profit-taking, as has happened since the first quarter of 2021.

On-chain analytics service Skew reported on Thursday that GBTC stopped attracting new investment after February 2021. When GBTC starts trading at a negative premium to its net asset value or NAV, capital inflows are suspended. The net asset value represents the potential market value of the assets held.

Funds stopped flowing into Grayscale Bitcoin Trust because its premium turned negative.Source: Skew

At the beginning of this year, the GBTC premium rose by 30%. But the latest skew map positions it precisely at -11.40%. The premium of GBTC relative to its net asset value was as low as 40.20% at its intraday low, which is the worst level in history.

At the same time, after Grayscale announced its intention to convert its trust structure into an exchange-traded fund (ETF), the GBTC premium recorded a moderate rebound in early April. The New York company’s decision was made after increasing competition from Canada’s newly launched ETFs at the time, mainly because they offered a better expense ratio than Grayscale.

For example, the purpose of the world’s first Bitcoin ETF settled in kind has surfaced at an expense ratio of 1%. Other Canadian Bitcoin ETFs Evolve and CI Galaxy offer 0.75% and 0.40% respectively. At the same time, Grayscale’s expense ratio increased by 2%.

Commercial competition with Canadian Bitcoin ETF May also prevent capital inflows into GBTCFor example, one month after the launch in February, the target company raised $1 billion in funds, which reflects that despite the sharp drop in GBTC inflows, the demand for Bitcoin investment products is still high.

Musk upsets Bitcoin investors on Wall Street

During this period, the spot exchange rate of Bitcoin also increased due to Elon Musk. After Tesla disclosed that it held $1.5 billion worth of BTC on its balance sheet, the cost of buying a bitcoin rose from as low as $38,057 on February 8 to as high as $64,899 on April 14. Speculators believe More companies will replace part of their cash holdings to hold flagship cryptocurrencies.

However, during Bitcoin’s price increase from February to April, the GBTC premium has been negative. When BTC/USD started to give up its gains due to profit-taking, China’s crypto ban and Tesla’s Bitcoin sell-off rumors, its minus 40.20% bottom appeared.

After Musk criticized the carbon footprint of cryptocurrency, Bitcoin correction sentiment accelerated. Source: BTCUSD on TradingView

Daniel Martins, founder of DM Martins Research, an independent research company, highlight This decline indicates that Wall Street’s interest in bitcoin-related investments has weakened, especially after the cryptocurrency became the obvious victim of Musk’s anti-bitcoin tweets in mid-May, and its valuation fell by more than half at one time.

Martins further pointed out that the annualized rate of return of the Grayscale report is 500% higher than that of the Nasdaq, but its correction is also worse than the Great Recession in 2008-82%, compared with 17% for the Nasdaq. This makes Grayscale Bitcoin investment products a kind of “super leveraged bet”, accompanied by poor risk-adjusted performance. The analyst added:

“The volatility of GBTC is almost 9 times that of the Nasdaq: 145% vs. 17%.”

Grayscale ETF in 2021?

Martins’ statement emphasized the possibility that the GBTC premium may face further downside, as investors are looking for more stable alternatives to counter Bitcoin’s continued price adjustment.

In addition, it competes with other digital currency investment alternatives, including providing cryptocurrency custody services for institutional investors to own real encrypted assets at a cheaper cost, and further faces the risk of restricted capital inflows.

Sumit Roy, analyst at ETF.com wrote The potential transition of Grayscale Funds to ETFs ends its 2% fee day because it needs to compete with other ETF armies led by companies such as Bitwise, Vanguard, Fidelity, Cboe and others. He added:

“However, no matter what happens, GBTC will become a force, and it may stick to it no matter how the crypto fund space develops.”

But whether the US market can obtain a Bitcoin ETF in 2021 remains a mystery itself.Financial Times Report Earlier this week, as the chairman of the US Securities and Exchange Commission Gary Gensler reiterated his concerns about investor protection in the crypto market, most ETF applications were settled.

“I expect [delay] Laura Morrison, Cboe’s global head of listing, said: “To be honest, this happens to all of our applications.