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The GBTC Discount Finally Seems Exhausted

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@pantera1
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We are at a difficult point in the market for quite a while.

The $30k support is insanely strong but it also appears that the $40k resistance will require a combination of some seriously positive news and huge upwards pressure to break.

Fingers crossed, the cryptocurrency market will recover and we will witness a push into higher grounds until the end of the year. The market was in trouble for months, but perhaps August will bring decisive changes and renewal to the bullish sentiment.

An indicator I am watching very often is close to getting validated. This indicator is the GBTC and for the first time in many months is behaving more rationally. "GBTC discount to NAV" finally looks to be bouncing.

This is the Grayscale Bitcoin Trust, which for almost all year was trading at double negative digits.

The GBTC discount in the OTC market is finally losing steam

I write about Grayscale and GBTC very often and while most of the time price of GBTC deviates at a huge level from spot exchanges, it is still something that I consider as a valid institutional adoption indicator.

The latest news on Grayscale had to do with the bearish unlocking of shares equivalent to 40k BTC. Had a really good article made about this which went well with 5k views on Medium: "The Final GBTC Unlock".

GBTC is shares, not BTC, and the Bitcoins held by Grayscale are not redeemable. Grayscale doesn't sell back to the spot market the BTC but they are left at its custody. The customers of Grayscale only trade the shares of the Trust in a secondary OTC market and the exchange OTCQX.

At the beginning of the year, two Canadian ETFs appeared and they attracted billions of funds, taking a large chunk of the market from Grayscale, however, Grayscale is still in the leading position.

Source: Ycharts

While in the chart we can observe a few spikes upwards, it certainly looks like it is balancing out lately. It is currently at about -5%, meaning the GBTC shares are sold 5% lower than the average price of BTC in the crypto exchanges.

This discount can be attributed to:

i) the lockdown mechanisms Grayscale requires to run its business (SEC regulations) ii) the real institutional interest that had thinned a lot for GBTC (was increased though for the Canadian ETFs and iii) arbitrage trading and exploitation of the previous extreme premium GBTC was offering.

As we can see from the chart below, the unlocking period is almost over and only shares worth a few thousand BTC are left still locked (and will follow in August).

GBTC Unlock, Source: Bybt

Cryptoquant offers information on the Grayscale GBTC fund but also on all available ETFs. ETFs have no lockup period and the BTC is redeemable. It doesn't stay locked under the custody of the ETF management firm but is also sold back in the "spot" (crypto) exchanges.

Source: Cryptoquant

This chart gives us the BTC holdings of 3iQ holdings of BTC, which as we can see had a huge sell-off during the Musk/China FUD days but also looks like it is recovering and institutional investors are entering Bitcoin again.

Conclusion

The possible recovery of the GBTC discount and perhaps a switch into a premium informs us about the current conditions of the institutional interest in Bitcoin. While the market will have met turbulence in the previous two months, the interest for BTC exposure remains intact. There are some promising signs in the Bitcoin ETFs that are also growing lately, and both these events could give us an early sign of recovery for the market.

Moreover, Grayscale is currently pushing for an ETF, which eventually will have to be accepted.

And eventually, it will begin offering Bitcoin again to institutions and accredited investors for the BTC trust.

Originally posted at Hive (via Leo Finance)

Images: Lead Image from: Unsplash


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