GBTC premium negative for two months in a row

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TL;DR Breakdown

  • Grayscale premium negative for two months in a row.
  • Waning institutional funds mainly responsible
  • ETFs will give GBTC a good run for their money.

Grayscale Bitcoin Trust (GBTC) premium has been negative for two months in a row. Since February this year, GBTC have sold for less than the Bitcoin price. What this implies is that the funds from institutional investors are starting to wane.

Just a few months ago in January, GBTC premium traded at 33.12%. Since February, GBTC premium has been on a downward course. On 25th March, it hit an all-time low of 14.34%. GBTC premium is presently trading at -9.32% – the second time in a row that it is experiencing a negative premium. Ironically, while GBTC premium had been negative, the price of Bitcoin rose from $38,850 to $57,891 – a whopping 57% increase. So what is going on?

Why GBTC premium is negative

Institutional investors have always been the major source of funding for the fund. GrayScale’s 2020  third quarter report stated that intuitional investors were responsible for 80% of funds in the trust. Institutions usually take huge loans, using the advantage of their investments. For some of them, they hope to use the trust’s rising premium to offset the interest rate of the loans they took. Sadly, this has not worked out quite well for them in the last two months.

Before now, institutional investors had no other options apart from GBTC. With the increase in the number of exchange traded funds (ETF) entering the market, investors are now looking away from GBTC. The Trust has a redemption period of six months and a 2% management fee. The ETFs offer better services at lower fees.

Let’s compare Purpose Bitcoin ETF and GBTC. This new ETF posted a 23.62% returns in March almost exactly same as Bitcoin’s price monthly increase of 23.96%. Within the same period, GBTC returned only 14.14%. Its negative premium and a host of other issues were responsible for this.

What does the future hold for GBTC?

The institutional investors would most likely gravitate towards ETFs as soon as the redemption period with the Trust elapses. Canada is home to some ETFs that offer better services and lower fees. US regulators would soon approve the first EFT in the US. Investors would now be spoilt for options. So will these make GBTC redundant? That’s not probable – maybe not any time soon. For GBTC to continue remaining relevant, it would have to lower its fees and offer its customers better service.