Institutions increase exposure to Grayscale Bitcoin Trust as GBTC cut nears 30%

Institutional investors are returning to accumulate Grayscale Bitcoin Trust (GBTC) stock as the discount to spot price has increased to n...


Institutional investors are returning to accumulate Grayscale Bitcoin Trust (GBTC) stock as the discount to spot price has increased to nearly 30%, according to data from Glassnode.

Since December 2021, select weekly sessions have seen investors pour between $10 million and $120 million into Grayscale’s flagship fund. Meanwhile, the largest capital inflow – amounting to nearly $140 million – came in the week ending February 25, as seen in the chart below.

Institutional investments in grayscale since September 2021. Source: Glassnode

No sale yet among high-level GBTC backers

The GBTC trust has attracted investment as global markets have suffered back-to-back shocks in recent months, including a sell-off in tech stocks, followed by Russia’s invasion of Ukraine that left many fund managers with a double-digit loss percentage.

For example, Cathie Wood Next Generation ARK ETFs (ARKW), which owns $478 million of GBTC, has fallen almost 45% year-on-year, mainly due to its exposure to sectors that have suffered the most during the recent market turbulence. , including technology (43.14%) and communication (27.99%).

ARKW Weekly Prize Chart. Source: Trading View

But in November 2021, ARKW added more than 450,000 GBTC shares in its portfolio, while their discounts reached almost 17.5%.

Likewise, the Morgan Stanley Insight Fund (CPODX) held over 1.5 million GBTC as of September 30, 2021, according to its securities deposits with the United States Securities and Exchange Commission (SEC). Its year-over-year performance as of March 6, 2022 was around minus 43%.

ARKW and CPODX both underperformed, with GBTC falling 43% over the past 12 months. However, neither ARKW nor CPODX said they sold significant shares of GBTC.

Institutional investments in grayscale. Source: Swissblock Technologies, Glassnode

ETF hype?

Many factors explain GBTC’s underperformance, including growing competition from exchange-traded funds (ETFs) in Canada. Unlike the GBTC, ETFs allow investors to engage in share buybacks, a process by which a fund can destroy stocks based on supply and demand dynamics.

Digital Currency Group, Grayscale’s parent company, tried to reduce the discount by buying back GBTC shares. But his efforts were further bogged down by the launch of ProShares Bitcoin Strategy ETF (BITO), which holds futures contracts. This ended up driving the price of GBTC further away from the spot price of Bitcoin.

Discount/premium from Grayscale Bitcoin Trust to net asset value. Source: YCharts

Now Grayscale is working on a killer switch at a discount, thanks to its attempts to convert GBTC from a trust fund to an ETF tied to the price of bitcoin. If the SEC approves Grayscale’s request, it would cause the GBTC rebate to be reset from its current rebate levels to zero.

Nonetheless, the SEC has not approved a single application for a spot Bitcoin ETF, citing risks related to price manipulation. By comparison, regulators in Canada and Europe have been more welcoming of Bitcoin-backed physical investment products.

Investor Trip Portfolio Management Company affirmed that the SEC would eventually approve the cash ETF “due to pressure from third-party supporters”.

Related: Grayscale launches campaign to encourage public feedback on Bitcoin ETF app

“If approved, Grayscale will convert the trust to a Spot ETF and the discount opportunity will no longer exist,” he wrote in his analysis published on February 14.

Conversely, analysts at Conservative Income Portfolio called GBTC an investment “intended for zero”, noting that its discount to the net asset value of Bitcoin “is not really relevant”.

“This could be relevant from a more short-term rebound perspective as a measure of sentiment.”

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Newsrust - US Top News: Institutions increase exposure to Grayscale Bitcoin Trust as GBTC cut nears 30%
Institutions increase exposure to Grayscale Bitcoin Trust as GBTC cut nears 30%
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