What Does Grayscale’s GBTC Falling Premium Tell us About Bitcoin Price?

Grayscale’s Bitcoin Trust shares (GBTC) are currently trading at $7.49 per share, a 15.81% premium of Bitcoin. GBTC is the first publicly quoted security “solely invested in and deriving value from” Bitcoin and since listing it has been known to trade at a high premium, having hit a 2020 high of 41.42% on Feb. 18. The premium is usually accentuated when prices are high.

The GBTC-BTC premium has dropped by over 30% since February this year, following Grayscale’s registration as a reporting company with the United States Securities and Exchange Commission as well as another private placement of its shares in February.

The Bitcoin price (BTC) is currently sitting at $7,058, having rallied by 21% in the last month. Although a pullback is still possible, Bitcoin price has recovered from the March 13 crash, and the reduced premium between GBTC and BTC is yet another bearish sign for Bitcoin as market sentiment continues to point toward extreme fear among investors.

GBTC Premium or Discount to NAV. Source: YCharts

Low institutional appetite?

The falling premium between GBTC and the Bitcoin price can be interpreted as a sign of reduced appetite from institutional investors who, according to Grayscale, make up 80% of its client base for the Bitcoin Trust.

This perspective could be further backed by the lowered volumes in the CME regulated futures market which in March saw a 44% decrease from the previous month. This is despite volumes increasing in unregulated derivatives markets and in spot markets alike.

However, Grayscale has seen increased interest from institutional investors having reported investments reaching a record-breaking $171.7 million during a single month of private offerings in 2019. While the coronavirus and the Black Thursday crash may have shaken the market, Grayscale currently manages $2.1 billion in assets for GBTC and other developments like Qi3’s Bitcoin fund show that there is still institutional demand to be filled.

GBTC Cumulative weekly investment - 2019

GBTC Cumulative weekly…

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