Grayscale’s GBTC Discount Reaches Record High 36% as Investors Seem to Prefer ETFs
Image courtesy of 123rf.

Grayscale’s GBTC Discount Reaches Record High 36% as Investors Seem to Prefer ETFs

The GBTC has traded at around a 36% discount against BTC spot prices, reaching a new record low.
Neither the author, Ruholamin Haqshanas, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The Grayscale Bitcoin Trust (GBTC) has registered a new record low, trading at around a 36% discount against BTC spot prices. The increasing discount could be an indication of dwindling institutional interest in Bitcoin or the fact that big players are favoring other alternative vehicles for BTC investments, such as ETFs.

GBTC Reaches 36% Discount Amid Lingering Market Conditions

Grayscale Investment’s Bitcoin Trust (GBTC) traded at around a 36% discount on September 29, 2022, and currently trades at around a 35% discount. This marks the largest discount in the history of the Bitcoin fund. 

There are two potential explanations for the increasing discount. In the first place, it could be an indication of declining institutional interest in Bitcoin. Amid the rout in global financial markets, investors are increasingly moving away from volatile assets. 

Furthermore, the US Federal Reserve’s aggressive rate hikes have made the US dollar more attractive. As previously reported by The Tokenist, the Fed is on the fastest rate hiking cycle since the 1980s. Just last month, the central bank hiked benchmark interest rates by 75 bps for the third consecutive time. This has turned investors away from risk-on assets such as Bitcoin and other digital assets.

Another reason that could have contributed to an increasing GBTC discount is the availability of more alternative vehicles for BTC investment. In October 2021, the first-ever Bitcoin-related ETF started trading on the New York Stock Exchange (NYSE). Ever since, more than a dozen Bitcoin-linked funds have hit the market. 

Moreover, a quick look at the performance of BITO, the first Bitcoin futures ETF, and GBTC reveal that the former has been more successful in tracking spot BTC prices. This could suggest that investors looking for a more efficient vehicle to gain exposure to BTC might have flocked to Bitcoin-linked ETFs. 

A stock chart showing the difference in trading activity among BITO, BTC, and GBTC.
BTC and BITO have shared a closer correlation than GBTC and BTC. Image courtesy of TradingView.

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What is GBTC?

The GBTC is a digital currency investment product for gaining exposure to Bitcoin that functions as a pseudo-ETF, allowing individual investors to buy and sell it in their own brokerage accounts. Launched in 2013, the fund was created to allow investors to gain exposure to BTC through traditional mediums, removing risks of self-custody, unclear regulation, and tax laws.

GBTC has grown to become the largest BTC fund. As of now, the fund manages 635,240 BTC, worth around $12 billion, or more than 3.3% of BTC’s circulating supply, according to Delphi Digital. 

Historically, GBTC has been trading at a positive premium of around 20% since 2015. However, this premium has turned negative over the past 19 months, reaching an average discount of -19%. The premium refers to the difference between the value of BTC held by Grayscale against the market price of those holdings.

It is worth noting that Grayscale has been trying to turn its fund into a spot Bitcoin ETF for some time now. However, the SEC has been denying the company’s application to convert the GBTC to an ETF. Grayscale has even sued the SEC over the rejection of its ETF application, but it could take years for the court to give a verdict.

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Do you think Grayscale’s GBTC will continue to trade at high discounts? Let us know in the comments below. 

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