Why is Grayscale’s Bitcoin Trust trading on a discount?

This Grayscale product is one of the only Bitcoin-focused financial tools available for accredited institutional investors. However, it is currently trading on a discount.

What happened to Grayscale?

According to data from multiple sources, Grayscale Bitcoin Trust (GBTC) is trading at a relatively high discount compared to its other high spread fees.

The product allows accredited institutional investors to bet on a rising (or falling) Bitcoin price and hold a small amount of BTC per “share”, traded on an open market or available on a registration.

Fees charged to investors for the convenience and security provided by Grayscale’s strong custody (compared to unregulated exchanges or storing crypto assets of one person with a startup that is not yet established).

But over the past few days, the spread has been reduced, attracting attention. Some people believe that this decline is due to the large investors withdrawing profits.

However, Vijay Boyapati, an influential Bitcoin investor and proponent, said the declining spread was attributable to GBTC having a new market competitor: American tech company MicroStrategy. The company has raked in more than $ 1.5 billion in Bitcoin in the year to date.

Vijay Boyapati tweeted:

“GBTC is a very popular way for organizations to come into contact with Bitcoin without having to think about custody or own underlying assets. It is currently trading at a strong discount from the NAV (net asset value, close to -12%). What does that mean?”.

Boyapati said in another tweet:

“MicroStrategy is a new way of getting into Bitcoin (because it owns so many coins), and MicroStrategy has no 2% annual management fees like the Grayscale Trust”.

He added that the recently launched Skybridge Bitcoin Fund is another competitive fund that allows investors to get exposed to Bitcoin without having to buy the underlying asset (and for a lower fee).

“Additionally, a Bitcoin ETF has been launched in Canada”.

Compete

Last year, the only way for many US investors to buy Bitcoin was through GBTC. But the trend may be fading, Boyapati commented:

“Increasing competition, high fees and inability to make the difference from the difference (or discount) against NAV, means that GBTC is susceptible to Bitcoin’s downward move as the coin The direction of finding an easy way to approach Bitcoin gradually decreases.

However, the famous Bitcoin investor noted the “discount against the NAV for GBTC” (a measure of the discount of a product to net worth per share) could become too deep if the Grayscale Trust. Becoming an exchange-traded fund (ETF) where arbitrage fees and discounts relative to the NAV can result in more arbitrage by traders.

“In the case of GBTC becoming an ETF, holders of a discount on net assets receive a 10%“ free ”return compared to just holding Bitcoin. This possibility creates some protection for the fund ”.

Discount or fee difference from NAV (-11.59% on March 4, 2021) | Source: Twitter

Boyapati isn’t the only person who sees MicroStrategy as a hypothetical Bitcoin ETF. He shares his views with crypto fund managers like Nic Carter and Bloomberg market analyst Michael McGlone. They say corporate stock isn’t just a MicroStrategy gambling anymore.