Several months ago, we wrote a report which analysed the premium of two of Grayscale’s funds — GBTC and ETHE. We discussed how retail investors had been using those funds to access cryptoasset exposure at a steep premium to NAV compared to our line of ETPs, available across Europe, which provides investors access to Bitcoin exposure without steep premiums. We had previously discussed how it was a common trade among institutional investors and professional firms who have been able to create new GBTC shares at NAV (thus avoiding acquiring exposure at a premium) and then (after a six month lockup period) have historically been able to sell their shares and benefit from the premium. Demand for this trade has been a critical reason behind GBTC’s explosive growth to-date — though strong retail demand for Bitcoin exposure (at whatever premium) and organic demand for Bitcoin exposure from institutions have played an important role as well indirectly and directly, respectively. The viability of this trade has waned, however, as the chart below shows.

GBTC shares are now trading at a discount to NAV of -11.59%, indicating that demand for GBTC on the secondary market no longer massively outweighs the selling pressure of those institutions carrying out the premium trade. The premium has historically been damaging to retail investors because, as the premium decreases due to the trade from institutional investors, they can underperform Bitcoin or ETPs such as ours which closely tracks Bitcoin’s performance (1:1). The chart below demonstrates just that; over the last six months, the 21Shares Bitcoin ETP (ABTC) has returned 380.21% compared to 244.71% for GBTC.

Reasons

There are two key reasons why the premium for Grayscale’s Bitcoin product has disappeared and why, as such, the product now trades at a discount. The first reason is that retail investors are becoming increasingly aware of alternative products available for getting exposure to Bitcoin and cryptoassets, whether that be other investment trusts or potentially a Bitcoin ETP/ETF in the coming months or years. However, volumes for GBTC are still substantial, but this is more in line with a massive spike in interest for cryptoassets in recent months. Despite this fact, GBTC is currently trading at a discount to its NAV.

The second reason, and likely more critical, is that the Grayscale premium trade from institutional investors is increasingly crowded, resulting in a large amount of recently-unlocked GBTC shares being offloaded as a way for such investors to realise their gains.

Implications

The primary implication from this is that if the discount of GBTC persists, the viability of the “GBTC premium trade” used by funds and entities such as Three Arrows Capital and BlockFi will likely fade away. In general, this will make it more difficult for institutional investors to use the trade to generate yield on their Bitcoin investments. This fact also points out that such investment trusts are not suitable vehicles for institutional-grade investment vehicles for Bitcoin investment.

Europe has paved the way for institutional and retail investors to access Bitcoin exposure safely, cheap, and regulated through 21Shares’ ETP suite, including the 21Shares Bitcoin ETP (ABTC | ISIN: CH0454664001). We hope that the United States will one day offer such vehicles for Bitcoin investment for the benefit of all types of investors interested in the cryptoasset market.