Although GBTC’s inflow of funds has fallen sharply, the market still has high demand for Bitcoin investment products.
Original title: “The inflow of capital stopped, why did Wall Street begin to abandon the Grayscale Bitcoin Trust?” 》
Written by: Glendon
Grayscale is no longer the only choice for investors
Grayscale Bitcoin Trust is one of the few products that provides a way for hedge funds, endowment funds, pension funds and family offices to invest in Bitcoin without requiring users to hold such digital assets themselves.
Therefore, the inflow of capital into GBTC continues to increase. For example, it was reported last year that Wall Street investors deposited about 18.2 billion U.S. dollars in the fund, which became an indicator of the growing interest of institutions in the cryptocurrency industry. Conversely, the decrease in capital inflows reflects institutional divestments or profit-taking, as has happened since the first quarter of 2021.
(Note: Profit-taking is also called technical correction. It usually refers to that the holders of stocks or futures contracts and options contracts actively change their positions after the market value changes and a favorable price appears to convert their book profits into A trading behavior of actual profit.)
On-chain analytics service Skew reported on Thursday that GBTC will no longer attract new investment after February 2021. When GBTC started trading at a negative premium to its net asset value (NAV), capital inflows stopped. The net asset value represents the underlying market value of the assets held.
As the premium of Grayscale Bitcoin Trust reversed to a negative value, the inflow of funds stopped. Source: Skew
At the beginning of this year, the premium of GBTC was as high as 30%. But the latest Skew chart shows that the premium is -11.40%. Prior to this, the premium of GBTC relative to its net asset value reached –40.20%, the lowest level in history.
At the same time, after Grayscale announced its intention to convert its trust structure into an exchange-traded fund (ETF), the premium of GBTC rebounded slightly in early April. Grayscale made this decision because the newly launched Bitcoin ETFs in Canada at that time made competition increasingly fierce. The main reason was that they provided a better expense ratio than Grayscale.
For example, Purpose is the world’s first physically settled Bitcoin ETF with an expense ratio of 1%. Other Canadian Bitcoin ETFs such as Evolve and CI Galaxy offer expense ratios of 0.75% and 0.40%, respectively. However, the gray cost ratio is as high as 2%.
In addition, commercial competition with Canadian Bitcoin ETFs may also hinder capital inflows into GBTC. Take Purpose as an example. Since its launch in February this year, the company has received $1 billion in funds per month. This reflects that although the inflow of GBTC funds has fallen sharply, the market still has a high demand for Bitcoin investment products.
Musk upsets Bitcoin investors on Wall Street
During this period, the spot price of Bitcoin also increased due to factors such as Tesla CEO Elon Musk. After Tesla disclosed that it held $1.5 billion worth of BTC on its balance sheet, the cost of buying a bitcoin climbed from a minimum of $38057 on February 8 to a maximum of $64,899 on April 14, which made the investment The authors believe that more companies will use Bitcoin to replace some of their cash holdings.
However, during the period of Bitcoin’s price increase from February to April, the premium of GBTC remained negative.
When Bitcoin started to fall due to profit-taking, China’s cryptocurrency ban, and Tesla’s Bitcoin selling rumors, the GBTC premium fell to a record low of -40.20%.
After Musk criticized the carbon footprint of cryptocurrency, it accelerated Bitcoin’s correction sentiment. Source: BTC/USD on TradingView
Daniel Martins, founder of independent research firm DM Martins research, emphasized that this decline indicates that Wall Street’s interest in Bitcoin-related investments is waning, especially in mid-May when cryptocurrencies became Musk’s anti-Bitcoin tweets. After the obvious victims, Bitcoin’s valuation was cut in half.
Martins further pointed out that the annualized rate of return of the Grayscale report is 500% higher than that of the Nasdaq, but its correction rate is also worse than that of the 2008 recession-the former was 82% and the latter was 17%. This makes Grayscale Bitcoin investment products a kind of “ultra-leveraged bet” and is accompanied by poor risk-adjusted performance.
He also added: “The volatility of GBTC is almost 9 times that of the Nasdaq: 145% VS 17%.”
Grayscale ETF will appear in 2021?
Martins’ statement emphasized the possibility that the GBTC premium may face further downsides, as investors are looking for more stable alternatives in the ongoing price adjustments of Bitcoin.
In addition, its competition with other digital currency investment alternatives, including the provision of cryptocurrency custody services for institutional investors to hold real cryptocurrency assets at a lower cost, further expands the risk of restricted capital inflows.
Sumit Roy, an analyst at ETF.com, wrote that the transformation of Grayscale Funds to ETFs may end the era of charging 2% fees because it needs to cooperate with Bitwise, Vanguard, Fidelity, and Cboe ) Compete with the ETF army led by other companies.
“But no matter what happens, GBTC will become a force. No matter how the cryptocurrency fund field develops, GBTC will continue to exist.” He added.
However, whether the U.S. market can obtain a Bitcoin ETF in 2021 remains a mystery in itself. The Financial Times reported earlier this week that most ETF applications have been shelved as the chairman of the US Securities and Exchange Commission Gary Gensler reiterated his concerns about investor protection in the cryptocurrency market.
Laura Morrison, head of global listing at the Chicago Board of Options Exchange (Cboe), said: “To be honest, I expect all of our filings will be delayed.”
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