Grayscale Bitcoin Trust Discount Draws More Institutional Investment

Grayscale Bitcoin Trust discount continues to widen, and institutional investors are taking advantage. 

Despite the underwhelming performance of Bitcoin in the past few months, data shows that institutional investors have been spending between $10m-$120m a week on GBTC shares since December. In the last week of February, almost $140m went into the fund.

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Institutional investments have continued despite market uncertainty. In the past few weeks, the global markets have suffered from massive sell-offs due to Russian aggression in Ukraine. 

These have led to significant losses for fund managers. But so far, GBTC’s backers have maintained their stakes.

ARK Next Generation ETF (ARKW), one of the biggest backers with $487m worth of GBTC, added 450,000 GBTC to its portfolio in November. This happened despite a 45% drop in its value year-on-year. 

Another institutional investor, the Morgan Stanley Insight Fund (CPODX), which has had a -43% year-on-year performance as of today, continues to hold over a million shares of GBTC. 

No sell off despite Grayscale underperformance

Just as these funds underperformed, GBTC itself has been underperforming. Since last year, the fund has fallen by 43%, but that hasn’t prompted any sell-off from its major investors.

This decision not to sell might be due to the discount GBTC shares offer in relation to the underlying cryptocurrency. As of Jan. 19, 2022, the discount was around 26.5% but it’s now much closer to 30%.

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The steep discount is due to lower demand for the product as other ETFs, including spot Bitcoin ETFs launched in Canada. 

This, along with the launch of Bitcoin futures ETFs in the U.S., means that institutional investors had other options to gain exposure to Bitcoin.

However, Grayscale is applying to convert GBTC from a trust fund to a spot Bitcoin ETF. This could mean an end to the discount, and institutional investors who are still holding stand to benefit significantly.

But the fact that the SEC has yet to grant a spot ETF remains an obstacle.

There have been almost 200 letters to the commission, with most of them asking it to approve a GBTC spot ETF.


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