Grayscale Bitcoin Trust’s free fall underscores how the latest stage in the retail-driven crypto craze is cooling off.
Bitcoin’s worst sell-off since December deals a particularly hard blow to the cryptocurrency’s largest tracking fund.
The grayscale $ 29.4 billion Bitcoin Trust (symbol GBTC) has fallen about 20% so far this week, nearly double the drop for the world’s largest cryptocurrency. GBTC closed on Wednesday more than 14% below the value of its underlying holdings – a record discount, according to data compiled by Bloomberg. The dislocation worsened despite plans by Grayscale Investment LLC’s parent company, Digital Currency Group Inc., to buy up to $ 250 million in GBTC shares.
The GBTC’s free fall underscores how the latest stage in the retail-focused crypto craze is cooling off. Confidence has steadily moved at a premium to its net asset value since its launch, with investors willing to pay for a chunk of Bitcoin as it soars higher. However, since GBTC does not allow redemptions – meaning trust shares cannot be created, not destroyed like in conventional funds – the number of shares outstanding has climbed to a record 692 million. With Bitcoin’s price stagnating now, this has created an imbalance between supply and demand as the trust’s accredited investors seek to offload their shares in the secondary market.
“GBTC has a fixed offer and acts as a leverage game on Bitcoin,” said James Seyffart, analyst at Bloomberg Intelligence. “As the price goes down sentiment goes down, GBTC will go down more than Bitcoin. The same thing happens on the way up.
Bitcoin fell for a fifth day Thursday to a two-week low, its longest losing streak since December. Demand for crypto has plummeted amid emerging signs that retail traders are pulling out of the markets, with everything from call options volume and GameStop Inc. stocks to the mega-popular exchange-traded fund Ark Innovation ( ARKK ticker).
In addition to the decline in individual investors, demand from institutions could slow with the launch of several Bitcoin ETFs in Canada. While US regulators have yet to approve the structure, leading issuers such as Fidelity Investments have filed plans.
“The addition of ETFs in Canada has likely taken some capital out of GBTC,” Seyffart said. “Mostly institutional money, as most retailers can’t easily buy a Canadian ETF.”
