Why is Grayscale’s Bitcoin Trust (GBTC) trading at a discount?

The Grayscale product is one of the only Bitcoin-focused financial instruments for institutional and accredited investors. It’s now trading at a discount, however.

What’s with Grayscale?

The Grayscale Bitcoin Trust (GBTC) is trading at a relatively steep discount compared to its otherwise high premiums, data from multiple sources shows.

The product allows institutional and accredited investors to bet on rising (or falling) Bitcoin prices and holds a small amount of BTC per “share,” which are traded on the open market or available on a subscription basis.

This premium is charged to investors for the convenience and the security provided by Grayscale’s strong custodian services (compared to unregulated crypto exchanges or storing one’s crypto holdings with an unestablished startup).

But in the past few days, the premium has sunk downwards, attracting eyeballs from within the industry. Some considered the fall to be caused by large investors cashing out their gains.

However, Vijay Boyapati, an influential Bitcoin proponent and investor says the falling premiums are due to GBTC getting a new competitor in the market: US tech firm MicroStrategy. The firm has picked up over $1.6 billion worth of Bitcoin in the past year.

Grayscale's Bitcoin Trust (GBTC) has been a very common ways for institutions gets get exposure to #Bitcoin without having to think about custody or owning the underlying asset. It's currently trading as a steep discount to NAV (almost -12%). What does this mean? Thread time

— Vijay Boyapati (@real_vijay) March 5, 2021

“MicroStrategy ($MSTR) is a new way of getting exposure to #Bitcoin (because the company owns a lot of it) and MicroStrategy does not have a 2% yearly management fee like the Grayscale Trust,” said Boyapati in a tweet.

He added that the recently launched Skybridge Bitcoin Fund was another competing fund that gave investors exposure to Bitcoin without having to buy the underlying asset (and with lower fees). “Also, a Bitcoin ETF has been launched in Canada,” Boyapati said.

Competition cuts

Previously, i.e. as recent as last year, the only way for many US investors to buy Bitcoin was via the GBTC. But this headstart could be gradually fading out, said Boyapati, adding:

“The increasing competition, high fees, and inability to arbitrage away premiums (or discounts) to NAV mean that GBTC is vulnerable to downswings in Bitcoin’s price where the rush for an easy way to get Bitcoin exposure diminishes.”

However, the popular Bitcoin investor noted that the “discount to NAV for GBTC”—a measure of the product’s discount to the net asset value per share—could become too deep if the Grayscale Trust were to became an exchange-traded fund, one where premiums and discounts to NAV can be more easily arbitraged by traders.

“Under the circumstance that GBTC becomes an ETF, those holding at a discount to its net assets would be getting a “free” 10% return vs just holding Bitcoin itself. This possibility creates some protection for the fund,” he noted.

Here is the historical premium (and recent discount) to NAV: pic.twitter.com/w2LymeYtSQ

— Vijay Boyapati (@real_vijay) March 5, 2021

Boyapati isn’t the only one considering MicroStrategy to be a pseudo-Bitcoin ETF. He joins the likes of crypto fund manager Nic Carter and Bloomberg market analyst Michael McGlone who say the firm stock is not solely a MicroStrategy bet any longer.

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