As Bitcoin price drops, GBTC accumulation increases

In March starts again? – GBTC adventures never end. As we told you a few days ago Digital Currency Group was to buy cryptocurrency from its subsidiary Grayscale. Today we learned that institutions are continuing to buy GBTC even though its discount has reached 30% of its real value. Could this be an omen that the Bitcoin ETF will be validated by the SEC? Not sure…

Purchases reached record levels

Since December 2021, it has been observed that during certain weekly sessions, investors have gone as far as investing between $10 and $120 million in trust Grayscale Major: GBTC.

As a reminder, GBTC is based to some extent on the same principle of corporate action. You have a limited number of units available in the GBTC Trust, each representing 0.00092779 BTC. So, the more shares you buy, the more confidence you get. Institutions that want to expose themselves to bitcoin, while respecting the regulations imposed by the Securities and Exchange Commission, can expose themselves to it by reviewing this type of product. However, a minimum investment of $50,000 is required to access the trust.

Unlike Bitcoin, which never stops, GBTC stops trading on Friday night. However, at the end of February 25, a day after Russia invaded Ukraine, a peak investment of $140 million was observed on the Glassnode schemes:

Institutional Investments in Grayscale, Source: Glassnode

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But there is no selling despite the economic and political context

Markets suffered several consecutive shocks in the wake of the announcements of the Federal Reserve, which decided to raise its key rates to adjust inflation in the US (at its highest level in 40 years). So investors wanted to withdraw from the technology sector by selling their shares on a large scale. Which had the effect of sending the NASDAQ into the vault, which saw one of the worst declines since crack Covid in March 2020 (about 20%).

Nasdaq price chart

Added to this is the war in Ukraine, which left GBTC investors with double (percent) losses.

As an example we takeETF ARK The Next Generation of the Internet Operated by Cathy Wood and which includes GBTC. This has lost nearly 45% of its value from year to year. But the Bitcoin drop is not the only explanation for the ETF’s drop in value.

ETH ARK . Next Generation Internet Price Chart
ARKW price charts. Source: Trading View

This decline is also explained by its exposure to sectors that suffered, as we said, from a sharp decline (related to the selling of the above-mentioned investors). In fact, the technology sector has lost the ETF ~ 43.14% Of its value and the value of communication ~ 27.99%.

While ARK Invest’s EFT system has been in range for several months. ARKW added 450,000 shares of GBTC in November 2021, while its discount almost reached 17.5%. However, no one could foresee the invasion of Ukraine, which helped to accelerate this haircut.

Ark Invest and Morgan Stanley = Diamond Hand?

ARK Investments is not the only one that finds itself in such a situation. The Morgan Stanley Insight Fund owns more than 1.5 million GTBCs as of September 30, 2021. That’s more than $66 million, according to stock filings with the US Securities and Exchange Commission (SEC).

GBTC Line invested by Morgan Stanley
Click on the image to enlarge

On an annual basis (March 2021 to March 2022) the Morgan Stanley Insight Fund (CPODX) lost more than 50% Its worth at the time of writing.

Morgan Stanley Insight fund price chart
Morgan Stanley Insight fund price chart

ARKW And CPODX Both have underperformed, with GBTC down 43% in the past 12 months. However, neither ARKW nor CPODX have said they have sold significant stakes in GBTC.

There are many factors behind the poor performance of GBTC, including the increased competition from exchange-traded funds (ETFs) in Canada, which we told you about last year.

What you need to know is that unlike GBTC, ETFs allow investors to execute Share buy back, which is a process by which the fund can destroy a portion of the inventory based on the dynamics of supply and demand. This keeps the price close to its true value.

But the problem is that GBTC is not an ETF. A few days ago we told you to buy several million dollars of Digital Currency Group stock from Grayscale. These buybacks can help limit the collapse, but unfortunately they are not enough, as GBTC competes with ProShares Bitcoin Strategy ETF (BITO), which holds futures contracts and thus continues to push the price of GBTC away from the SPOT price of Bitcoin.

📚 Definition of : forward contract It constitutes an obligation to buy (to the buyer) or sell (to the seller) an underlying asset at a fixed price today, but for delivery and settlement at a future date. In our case, the underlying asset is Bitcoin, but it could be a financial instrument like stocks.

Chart of discount or premium to NAV
Ycharts source

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Grayscale in the sauce?

This is partly why Grayscale is pushing the SEC to accept a Bitcoin ETF, because it would allow them to convert GBTC into an ETF and thus destroy stocks, allowing them to do so. GBTC Price Raised Towards SPOT Bitcoin Price.

However, the Securities and Exchange Commission (SEC) has not yet approved a single Bitcoin ETF, citing risks related to price gouging.

By comparison, Canadian regulators have been more welcoming of Bitcoin-backed physical investment products. as was the case with Fidelity Investments Canada’s BTC Spot Forex Trading Fund, which was announced in December of last year.

There are two Grayscale solutions available to get out of the predicament:

  • According to the management company Investor’s JourneyThe Securities and Exchange Commission (SEC) will eventually approve the Bitcoin Spot ETF if lobbyists lobby for it. But so far this does not appear to be the case.
  • On the other hand, income portfolio analysts have been more critical of the product offered by Grayscale, presenting it as a product that is “destined to go to zero”.

So, will Grayscale and GBTC survive the super obsession of Income Portfolio analysts or will they get out of this mess that has been rescued in extreme cases before dry Who will agree at the last minute. Will Grayscale and GBTC get obsessed with analysts from Income Portfolio or will they come out of this SEC bailed out mess that will approve a US SPOT ETF at the last minute? Nothing less emphatic…a case to follow!

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