Bitcoin: With Grayscale’s premium dropping, is this the right time to invest?
Bitcoin’s biggest Bitcoin Fund – Grayscale’s GBTC is trading at a discount for the third time, and it is the largest discount so far. It started off with less than -0.25% discount, following Bitcoin’s dip from the latest ATH of $58330. Analysts on crypto Twitter have suggested that there may be further price drops before the price is back on track for $268000. Currently, the asset is trading at $44698 based on data from CoinMarketCap.
BTC is currently trading around 6% below the previous day’s price and 20.78% below last week’s price. Currently, GBTC is trading at a nearly 3% discount, and a discount of this magnitude with a premium is a buy signal for contrarians. The last two times when there were discounts in GBTC, there was a 2x and 4x rally respectively in the following months. It is anticipated that the same may play out this time around, however, post further corrections in the short term.
The above chart shows the net asset value premium or discount on GBTC and the critical question here is, is it possible that history may repeat itself? Though there is a new Bitcoin ETF in Canada, offering institutional investors an opportunity to invest in Bitcoin, a premium for GBTC still has an impact since the discount offers a lucrative opportunity for institutions to invest. Another factor to consider is that Bitcoin trades have become crowded in the past few weeks and trading at discount, GBTC signals a further drop in Bitcoin’s price in the near future.
Though there are competitors offering similar products to GBTC, Grayscale’s AUM makes it challenging for competitors. Multiple Bitcoin ETFs were launched in the past two weeks, there are several opportunities for institutions to enter, offering a wide array of features like lower fees, however, Grayscale’s BTC offers free Bitcoin through the discount.
Canadian trusts have seen discounts as well, however, thanks to the volatility it is not the ideal choice for every institution. Institutional investors bought GBTC instead of Bitcoin, for hedging against the volatility of Bitcoin on spot or derivatives exchanges. When Bitcoin’s price was higher, there was a premium on GBTC, however, that was followed by a discount when the price dropped. Currently, even at the $46000 level, GBTC is trading at a discount, and this may lead to a further drop in Bitcoin’s price as the discount increases.