There is a reason why grayscale bitcoin trusts serve as a benchmark for measuring institutional interest in bitcoin.
Grayscale is no longer the only option for investors
Grayscale’s digital currency investment product is the only one available for hedge funds, endowments, pension funds and family offices to acquire bitcoin without needing to own that digital asset themselves.
As a result capital flows into GBTC continue to increase. Last year’s report, for example, reported that Wall Street investors deposited about $18.2 billion in the fund as a measure of growing institutional interest in the cryptocurrency space. Conversely the decrease in capital inflows reflects institutional withdrawals or profit-taking, as has happened since the first quarter of 2021
The on-chain analytics service Skew reported Thursday that GBTC stopped attracting new investment after February 2021. Capital inflows were suspended when GBTC began trading at a negative premium to its net asset value. The net asset value represents the underlying market value of the shares held.
Funds stop flowing into Grayscale Bitcoin Trust as its premium flips into negative territory. Source: Skew
Earlier this year, GBTC’s premium was as high as 30%. But the latest Skew pegs it at -11.40%. GBTC’s premium to its net asset value was at its session low of -40.20%, the worst level in its history.
Meanwhile, GBTC’s premium slowly recovered in early April after Grayscale announced its intention to convert its trust structure to an exchange-traded fund. The New York-based firm’s decision came amid growing competition from then-new ETFs in Canada, mainly because their expense ratios were better than Grayscale’s.
Purpose, for example, is the world’s first physically settled bitcoin ETF with an expense ratio of 1%. evolve and CI Galaxy, other Canadian bitcoin ETFs, offer fees of 0.75% and 0.40%, respectively. Meanwhile Grayscale has a 2% rate, which is high in comparison.
Commercial competition with Canadian bitcoin ETFs may also be stifling capital flows into GBTC. Purpose, for example, raked in $1 billion a month after launching in February, and demand for bitcoin investment products remains high despite a plunge in inflows to GBTC.
Musk Angers Wall Street Bitcoin Investors
Bitcoin’s spot price has also moved higher due to the Musk factor. The cost of buying a bitcoin rose from a low of $38,057 on Feb. 8 to a high of **,899 on April 14 after Tesla disclosed it held $1.5 billion worth of BTC on its balance sheet, with speculators believing more companies would replace some of their cash holdings with the cryptocurrency.
But the GBTC premium has been negative throughout Bitcoin’s February-April price rally. Its negative 40.20% bottom came when BTC started selling off its gains due to profit-taking, China’s cryptocurrency ban and rumors of a bitcoin sell-off by Tesla.
Cryptocurrency World – Why Wall Street is becoming less interested in grayscale bitcoin trusts
Bitcoin’s correction accelerates after Musk criticizes the cryptocurrency’s carbon footprint. Source: TradingView
Daniel Martins, founder of independent research firm DM Martins Research, highlighted the decline as a sign of Wall Street’s waning interest in bitcoin-related investments, especially after the cryptocurrency became a clear victim of Musk’s anti-Bitcoin tweets in mid-May, and later lost more than half of its valuation at one point.
Martins further noted that Grayscale reported a 500% higher annualized return than Nasdaq, but its correction was also worse than the 2008 recession, 82% to Nasdaq’s 17%. This makes Grayscale’s bitcoin investment product an “overleveraged bet” accompanied by poorer risk-adjusted performance. The analyst added: “GBTC’s volatility is almost nine times that of the Nasdaq. 145% versus 17%.”
A gray ETF for 2021?
Martins’ statement highlights the possibility that GBTC premiums could face further downside as investors look for more stable alternatives amidst the ongoing price correction in Bitcoin.
In addition, Grayscale is further at risk of restricted capital inflows as it competes with other digital currency investment alternatives, including cryptocurrency custody services that offer institutional investors the ability to own real cryptocurrency assets at cheaper fees.
Sumit Roy, an analyst at ETF.com, wrote that Grayscale could transform into an ETF, ending its 2% fee days, as it needs to compete with an army of other ETFs led by Bitwise, Vanguard, Fidelity, Cboe and others. He added, “No matter what happens, GBTC is ready and it’s likely to stick around no matter how the cryptocurrency fund space evolves.”
But whether the U.S. market will be approved for a bitcoin ETF in 2021 remains a mystery in itself. The Financial Times reported earlier this week that most ETF applications have been dusted off as SEC Chairman Gary Gensler reiterated concerns about investor protection in the cryptocurrency market.
“Honestly, I expect this delay to happen with all of our applications,” argued Laura Morrison, Cboe’s global head of listings.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-is-wall-street-becoming-less-and-less-interested-in-grayscale-bitcoin-trusts/
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