Institutional investors are piling back into shares of Grayscale Bitcoin Trust (GBTC) as the spot price discount has risen to almost 30%, data from Glassnode shows.
Since December 2021, in some weekly sessions, investors have invested between $10 million and $120 million in Grayscale's flagship fund. Meanwhile, the largest capital inflow, amounting to nearly $140 million, appeared in the week ending February 25, as shown in the chart below.
No settlement yet among high-profile GBTC sponsors
The GBTC trust attracted investment as global markets faced back-to-back shocks in recent months, including a dramatic sell-off in tech stocks, followed by Russia's invasion of Ukraine that left many fund managers with a double-digit percentage loss.
For example, Cathi Wood ARK Next Generation ETF (ARKW), which owns $478 million worth of GBTC, slumped nearly 45% year-over-year, primarily due to its exposure to sectors that suffered the most during the recent market turmoil, including technology (43.14 %) and communication (27.99%).
But in November 2021, ARKW aggregate over 450,000 GBTC shares in his portfolio, when his discounts were almost 17.5%.
Similarly, the Morgan Stanley Insight Fund (CPODX) held more than 1.5 million GBTC as of September 30, 2021, according to its securities presentations with the United States Securities and Exchange Commission (SEC). Its year-over-year performance as of March 6, 2022 came to around minus 43%.
Both ARKW and CPODX underperformed as GBTC fell 43% in the last 12 months. However, neither ARKW nor CPODX reported having sold any significant shares of GBTC.
ETF hype?
Many factors are attributed to GBTC's underperformance, including growing competition from exchange-traded funds (ETFs) in Canada. Unlike GBTC, ETFs allow investors to make share redemptions, a process through which a fund can destroy shares based on supply and demand dynamics.
Digital Currency Group, the parent company of Grayscale, has tried to reduce the discount by buying back shares of GBTC. But their efforts have been further bogged down by the launch of ProShares Bitcoin Strategy ETF (BITO), which owns futures contracts. This has ended up dislocating the price of GBTC further away from the spot price of Bitcoin.
Now, Grayscale has been working on a discount killer switch, through his attempts to convert GBTC from a trust fund to an ETF linked to the price of Bitcoin. If the SEC approves Grayscale's application, GBTC's discount would be reset from its current discount levels to zero.
Nonetheless, the SEC has not approved a single Bitcoin Spot ETF application citing risks related to price manipulation. By comparison, regulators in Canada and Europe have been more receptive to physical investment products backed by Bitcoin.
Investment Management Company Investor Trip he claimed that the SEC would ultimately approve the spot ETF "due to pressure from third-party supporters."
Related: Grayscale Launches Campaign to Encourage Public Comment on Bitcoin ETF Application
"If approved, Grayscale will convert the trust to a spot ETF and the discount opportunity will no longer exist," he wrote in his analysis published on February 14.
By contrast, analysts at the Conservative Income Portfolio called GBTC an investment that is โtargeted to zeroโ, noting that its discount from Bitcoinโs NAV is โnot really relevantโ.
"It could be relevant from a short-term rebound perspective as a measure of sentiment."
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The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
