In brief

  • Digital asset investment manager Grayscale has halted investments in its Bitcoin and Ethereum Trusts.
  • Shares of the Grayscale Bitcoin Trust (GBTC) are subject to a six-month lock-up period, with shares purchased in June becoming freely tradable this week.
  • The halt is temporary.

Grayscale has temporarily halted investments into six of its trusts, among them its Bitcoin and Ethereum Trusts, just a few days after Bitcoin prices broke $20,000 and surged to new all-time highs.

Investment management firm Grayscale no longer accepts investments in trusts tracking the performance of Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, Litecoin, and its Digital Large Cap Fund. 

The halts went into place as the six-month lock-up period for selling recently-purchased shares of the Bitcoin fund, traded under the symbol GBTC, comes to an end. 

“We're just at that point in the year where those windows the public window will be closing. And then the private window will be open,” Corey Law, a spokesperson for Grayscale, told Decrypt.

That has implications for GBTC holders, but also for Grayscale’s crypto buying strategy, where buying digital assets at a lower price translates into larger holding—and potential gains—for GBTC investors. 

Shares of the Bitcoin Trust under the ticker GBTC consistently trade at a higher price than the underlying Bitcoin, due to buying pressure from institutional investors with few alternative options for buying BTC. 

Even at a 30% premium to buying Bitcoin outright, GBTC shares are attractive to traditional investors because they’re available to buy and trade on existing stock exchanges, and can be contributed to IRA accounts and other popular retirement vehicles.

Dealing in GBTC also eliminates the sometimes-steep learning curve that comes with getting familiar with transferring, holding, and managing digital assets in native blockchain-based wallets or smart contracts.

There could be another benefit to Grayscale for halting the acceptance of new GBTC investments; buying Bitcoin at a lower price. Ben Lily of Jarvis Labs noted that the halt coincides with the end of a mandatory six-month lock-up of GBTC shares purchased in June 2020. 

Shares bought at that time can now be sold on the open market to non-accredited investors who can’t invest in  Grayscale’s Bitcoin Fund upfront, putting downward pressure on the price of GBTC. And since Grayscale’s Bitcoin holding is so large—now up to more than $11 billion—that downward pressure could carry over into raw Bitcoin prices, too.

If Lily's scenario plays out, buying Bitcoin for Grayscale’s fund could be notably cheaper than before the selling started, resulting in more Bitcoin purchases for all investors. And since Bitcoin tends to lead the price movements of other assets like ETH, lower BTC prices mean lower Ethereum prices as well.

Grayscale has purchased more than 161,000 Bitcoin since June 2020 and has paused investments in the past when lock-ups were expiring, so it’s unlikely the move represents a change in strategy, or that accredited investors will be boxed out of the Bitcoin Trust for very long. And if price predictions play out, those investors could be buying the dip, thanks to clever investment management from Grayscale.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.