key takeaways
- The GBTC fund is up 25% since the start of the year, compared to a 4% increase in the underlying asset, bitcoin.
- The discount is now back to where it was before the FTX collapse, at 37%
- Discounts reached an all-time high of 50% just four weeks ago
the largest Bitcoin The fund in the world, the Grayscale Bitcoin Trust, has seen its value increase by 25% since the start of the year. Bitcoin, on the other hand, is only up about 4% on the year.
This means that the discount on the underlying asset, bitcoin, is at its smallest level in months. I analyzed the divergence only four weeks ago in December, when the discount came all-time high 50%,
Today, Exemption Sits at 37%, Where It Was Before Ignorance The Fall of FTX,
What is grayscale relaxation?
Grayscale is a trust that provides investors with an opportunity to gain exposure to bitcoin without having to physically purchase it. This can be convenient for institutions or other entities that may not be able to participate in the bitcoin market directly due to regulatory or legal reasons.
But Grayscale has rarely traded at the same price as its net asset value. Earlier, it traded at a premium to underlying bitcoin as shares soared with investors desperate for exposure to the high-flying cryptocurrency.
Today, however, it’s the opposite – huge discounts. While 2% is a sizeable fee that explains some of the discount, it is not enough to bridge the 30%+ discounts we have consistently seen this crypto winter.
The SEC recently rejected Grayscale’s application to convert the trust into an exchange-traded fund, prompting bearish action around the fund. There has also been the emergence of more competition, particularly in Europe, and funds similar to those filing for bitcoin ETFs are being launched.
But the biggest concern was about the security of the reserve. The issue gained legs following the collapse of FTX, as speculation mounted that Grayscale’s parent company, Digital Currency Group (DCG), could file for bankruptcy.
DCG is also the parent company of Genesis, which recently laid off 30% of its workforce and is reportedly considering bankruptcy. Concerns grew when Grayscale suddenly refused to publish proof of prevailing reserve reports following nefarious behind-the-scenes machinations on FTX.
It cited “security concerns” as reasons why this would not be possible, but analysts lamented it was unclear how the publication of public records on the blockchain could spark security concerns.
6) Coinbase frequently does on-chain verification. Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through cryptographic proof of reserve or other advanced cryptographic accounting procedures.
— Grayscale (@Grayscale) November 18, 2022
Why has the discount stopped?
While the discount is still massive at 37%, it has reduced to 50% after the FTX explosion.
DCG is under increasing pressure to address this exemption, with calls from within the industry that the trust should allow investors to redeem their holdings, allowing them to realize the full value of bitcoin. The clamor may have helped narrow the gap to some extent.
Firtree, a hedge fund, also launched a lawsuit against Grayscale, demanding that the company either reduce its fees or allow redemptions in order to close the discount.
But like everything in crypto right now, macro has a role to play. year has started crypto prices rising Increased optimism that inflation may have peaked. This comes after a relatively quiet month or so in the crypto markets.
Discounts skyrocketed after the FTX crash because people feared contagion and the chips were still falling. similar to peg on tether slipping When the UST crisis happened.
now that normal service somewhat restarted, the discount has decreased. Unfortunately for investors, it’s still 37% away from net asset value. In a year where bitcoin itself has fallen, layering in discounting on top of that bullish price action is the last thing investors need…