GBTC is the ticker of the Grayscale Bitcoin Trust. Until recently, it was the favorite choice for institutions, to acquire a share, representing the value of Bitcoin held in Grayscale custodial wallets.
Grayscale buys Bitcoin for investors and gives a share of this Bitcoin back. It is an SEC reporting financial instrument. There had been an increase lately and we keep reading about Grayscale buying BTC and how it absorbs almost all the new mined Bitcoins for more than a year.
GBTC has a lockup period. This is a six-month period that is required before the investor can have access to the OTC market and sell the GBTC shares.
GBTC until recently was always trading in premium in this OTC market. An important fact that probably changed a lot and is overlooked, is that the lockup period used to be 12 months.
This attracted more speculation in GBTC as a reduced period of having the fund available for trading, increased market interest for capitalization of the premium in a form of arbitrage trading.
A premium means that the price of Bitcoin in this market, which is the OTCQX exchange, was always trading higher than the regular cryptocurrency exchanges. This premium was the basis of many financial products, one being BlockFi. With BlockFi bitcoin owners can transfer the BTC to the custody of this company and in return, they get paid with a 6% yearly interest. BlockFi mainly profited by trading this GBTC premium, which varied between 10-40% for all 2020.
Grayscale has been enjoying an increase in demand for the GBTC trust, especially after the third Bitcoin halving that happened in May, 2020.
To summarize in 2020 we had these big events that were related with Grayscale and contributed to the rise of Bitcoin.
A strong and constant GBTC premium for years since its creation in 2013.
Reduction of GBTC lockup period down to six months.
A reduction in requirements to the definition of "accredited investor".
The last part is also an important change that expanded access to markets for more institutions and private funds. These three values helped Grayscale increase operations and volumes throughout 2020.
655,000 BTC
Grayscale is currently holding around 655,000 BTC in custody. This number keeps increasing as there is an influx of the so-called institutional money. But lately, something has changed, and there is a huge bell ringing.
GBTC is now traded at a discount for the first time.
Image from Yahoo Finance
For the first time ever, the GBTC trust shares price in the OTC markets is traded at a significant discount. While previously I was under the impression that this discount wasn't going to last, it has already been over one month and the trend seems to be increasing.
Image from Yahoo Finance
This chart is the previous month of GBTC discount or Premium to NAV and it gives us a clear picture that Bitcoin has been trading by institutions at a 10% lower price than the average price outside of the OTC.
Image from Yahoo Finance
This GBTC discount has two explanations.
The institutional interest is thinning
There is a lot of profit-taking right after the lockup period ends
Amidst rumors of growing regularity uncertainty, we often see banks being contradictive to their public statements. The fact is that no matter regulations, Tether, Ripple, Bitfinex, and anything else happening, GBTC is dumping and it doesn't look it is stopping.
The fact that nobody is discussing
But let's take a look at another Grayscale indicator which seems interesting. It is the year 2019 and we are reading in the crypto news about Grayscale and how the institutions are constantly increasing their exposure in Bitcoin.
Source: Medium
In-kind inflows. This is the key word that we can only imagine what it could be. But we don't need to stretch our imagination, it is obvious these in-kind contributions are mostly BTC, probably Tether, and public traded shares.
Surprisingly, Grayscale has not issued any such indicator since 2019. The mainstream media lead us to believe that all these inflows are coming from fiat currency, but it seems that at least until 2019 it was mostly unidentified in-kind inflows:
Source: Bybit blog
Arbitrage was the main factor driving Grayscale's GBTC. It is not anymore as the premium has disappeared and the market conditions are looking overheated with profit-taking on the rise for the institutional part. While many are claiming this will be temporary, these are some strong signs of weakness.
Source Twitter
I am not sure how suddenly it is a good thing for Bitcoin that the GBTC is trading at a discount. It was a good thing that it was trading at a premium and a bullish indicator, and it also makes sense that it is now trading at a discount?
Some more information:
https://medium.com/astronaut-capital/grayscale-and-the-institutional-inflow-paradox-6d89bac79d08
https://blog.bybit.com/en-us/insights/arbitrage-by-grayscale-in-kind-contribution/
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Greetings Peasant. I know nothing of what you're here talking about, but due to the fact you placed so many graphics on it, maybe it is of importance. My finances minister will definitely take a look at it and use a more noble language to let me know what this is about if he deems it proper. Royal Regards, TheMemeLord, King of Memes.