Grayscale’s Bitcoin Trust now trades at a discounted price, should the investors be worried?
Shares in Grayscale’s Bitcoin trust now sell below the cost of underlying Bitcoin for the first time in five years. Many are saying that it means there is trouble on the way.
Some analysts are now concerned that this would depress the price of Bitcoin. When this trend continues, the worry is that Grayscale could stop buying up Bitcoin. And being one of the biggest Bitcoin buyers, a lapse in demand can be the reason for its price drop.
Peter Schiff, a gold bug and noted crypto critic, wrote on Twitter: “If this persists the Trust will have no more inflows and will therefore not be buying any more Bitcoin. Without Grayscale, the biggest daily buyer, where will the new buyers come from to support the price?”
He added: “The market needs new buyers coming in to allow existing holders who need actual cash to buy something to get out.”
But analysts say that Schiff’s take is overblown, and the dip in price could be a normal feature of the market.
The Grayscale Bitcoin Trust is a large pool of privately-invested money that Grayscale uses to acquire Bitcoin. Grayscale then shares in the Trusts on public over-the-counter desks.
As an alternative to a Bitcoin Exchange-Traded Fund in the US, Grayscale’s trusts are one of the ways that US investors can buy Bitcoin on the stock market.
Grayscale charges investors management fees of around 2% and its trusts are very popular that shares in them are basically traded at a premium – every share is worth more than the Bitcoin that investment is used to buy. To put it simply, investors that use Grayscale are overpaying for Bitcoin.
Since yesterday, Grayscale has traded at a -0.68% discount to the real price of Bitcoin.
Darius Sit, CIO of QCP Capital, stated that there’s nothing to worry about. “Most ETFs trade at discount to NAV,” he said. “It’s not a big deal.”
Sit added that many large trading desks wanted to make the most of GBTC’s high premiums, It is often to get around the tax issues; trading GBTC allows them to hold higher positions in Bitcoin, he said.
Grayscale will issue these shares in GBTC in around six months. During that time, the lending desk could get that GBTC, which they expect to trade at a premium, and use the money to buy back the Bitcoin for a profit.
“GBTC trading at a discount to the price of Bitcoin doesn’t necessarily indicate bearish outflows,” he said.
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