Grayscale Trust Records Negative Premiums Amid Market Crash

At its inception, the Grayscale Bitcoin Trust was downright revolutionary. It opened many doors for the crypto space to gain higher levels of mainstream presence. As a testament to this, it’s the largest listed crypto asset out there, boasting a total of $30.17 billion in assets under management.

Grayscale’s US Supremacy

The fund itself was launched all the way back in 2013. The Grayscale Bitcoin Trust (GBTC) quickly broke new ground, becoming the institutional vehicle of choice when it comes to the US’s crypto space. In a big part, this is thanks to the SEC being extremely prudish in allowing Bitcoin-based exchange-traded funds, but even so, GBTC is an amazing concept.

The US Office of the Comptroller of Currency (OCC) stands as the official regulator of investment trust funds, being exclusively designed for accredited investors that have proven their worth numerous times. Even so, retail investors can get their hands on it, as well, should they opt for a six-month lockup period to get access to it.

Skyrocketing Premiums Slowly Decreasing

With all of this in mind, this leads to the GBTC asset to be traded at a premium: The price of GBTC is more than the price of the equivalent amount of Bitcoin represented in its shares. This occurs as the demand from retail traders starts to rise within the secondary markets.

Institutional clients have it better, however, being able to buy at par-price from Grayscale Investment directly. This completely bypasses whatever price GBTC is on the OTC market.

This premium can skyrocket, with GBTC witnessing as high as 40% above the Bitcoin equivalent’s asking price. Over the past four weeks, this calmed down considerably, with a premium ranging from 5% to 10% when Bitcoin reached $58,000 and saw a subsequent and violent correction. Some speculate that this is just the start, however.

Trading GBTC At A Discount

Now, however, amid an increase in the US 10-year Treasury Bond’s interest rate, which generally destabilized the stock and crypto markets, GBTC is in a bit of a problem. With everything going down, there was a distinct appetite loss for secondary markets.

This, in turn, unbalanced GBTC, making it go for a discount. GBTC also has no real way to recover from this, as there isn’t a surefire way to convert GBTC directly into BTC.

The odd thing is, GBTC has been subject to several spectacular market crashes within the general Bitcoin market. None of that ever seemed to really bother GBTC and its rather impressive market premium.

Something that could be affecting it, however, is the new entrance of BTC Exchange-traded funds (ETFs). Purpose ETF is now on the market, wresting the monopoly from GBTC as the one and only Bitcoin derivative officially listed. Nothing concrete can be said for truth, but things certainly change when new competitors enter the ring.

Remember, all trading carries risk. Past performance is no guarantee of future results.

A journalist, with experience in web journalism and marketing. Ali holds a master's degree in finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of cryptocurrency publications.