Key Takeaways
- • The $29.4 billion Grayscale Bitcoin Trust (GBTC) fell about 20% during the week, nearly double the decline in bitcoin itself, according to Bloomberg data.
- • GBTC closed more than 14% below the net asset value of its underlying holdings on Wednesday, a record discount, despite parent Digital Currency Group's plan to buy up to $250 million of GBTC shares.
- • GBTC does not allow redemptions, so its shares outstanding ballooned to a record 692 million, creating a supply-demand imbalance as accredited investors sell into the secondary market.
- • Bitcoin fell for a fifth straight day to a two-week low, its longest losing streak since December, as retail traders retreated from speculative assets.
- • Bloomberg Intelligence analyst James Seyffart attributed part of GBTC's outflows to the launch of several bitcoin ETFs in Canada, which likely drew institutional capital away from the trust.
Summary
Bitcoin's worst selloff since December has hit the Grayscale Bitcoin Trust (ticker GBTC) particularly hard. The $29.4 billion vehicle, the largest fund tracking the cryptocurrency, has dropped about 20% so far this week, nearly double the decline in bitcoin, according to data compiled by Bloomberg. The trust closed on Wednesday more than 14% below the value of its underlying holdings, a record discount, even as Grayscale Investment LLC's parent, Digital Currency Group Inc., planned to purchase up to $250 million of GBTC shares.
The trust had traded at a persistent premium to its net asset value since launching, as investors paid up for exposure to bitcoin during its rapid rise. That dynamic has reversed. Because GBTC does not permit redemptions, shares can only be created, not destroyed as in conventional funds. The number of shares outstanding has grown to a record 692 million, and with bitcoin's price stalling, accredited investors holding the shares are seeking to sell in the secondary market, creating a supply-demand imbalance.
Bloomberg Intelligence analyst James Seyffart said the fixed supply makes GBTC behave like a leveraged play on bitcoin. "As price goes down, sentiment goes down, GBTC is going to fall further than Bitcoin. Same thing happens on the way up," he said.
Bitcoin fell for a fifth consecutive day on Thursday to a two-week low, its longest losing streak since December. Demand has weakened as retail traders appear to be retreating, with indicators such as call options volume, GameStop Inc. shares and the Ark Innovation ETF (ARKK) all faltering. Institutional demand may also be cooling following the debut of several bitcoin ETFs in Canada. U.S. regulators have yet to approve a similar structure, although high-profile issuers such as Fidelity Investments have filed plans. Seyffart said the Canadian products "likely pulled away some capital from GBTC, mainly institutional money, because most retail can't easily buy a Canadian ETF."
The trust had traded at a persistent premium to its net asset value since launching, as investors paid up for exposure to bitcoin during its rapid rise. That dynamic has reversed. Because GBTC does not permit redemptions, shares can only be created, not destroyed as in conventional funds. The number of shares outstanding has grown to a record 692 million, and with bitcoin's price stalling, accredited investors holding the shares are seeking to sell in the secondary market, creating a supply-demand imbalance.
Bloomberg Intelligence analyst James Seyffart said the fixed supply makes GBTC behave like a leveraged play on bitcoin. "As price goes down, sentiment goes down, GBTC is going to fall further than Bitcoin. Same thing happens on the way up," he said.
Bitcoin fell for a fifth consecutive day on Thursday to a two-week low, its longest losing streak since December. Demand has weakened as retail traders appear to be retreating, with indicators such as call options volume, GameStop Inc. shares and the Ark Innovation ETF (ARKK) all faltering. Institutional demand may also be cooling following the debut of several bitcoin ETFs in Canada. U.S. regulators have yet to approve a similar structure, although high-profile issuers such as Fidelity Investments have filed plans. Seyffart said the Canadian products "likely pulled away some capital from GBTC, mainly institutional money, because most retail can't easily buy a Canadian ETF."
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