GrayScale Bitcoin Trust’s (GBTC) premium fell to -20.48% on Wednesday, May 12, according to cryptocurrency data tracker YCharts. This is the lowest ever point for Grayscale’s flagship product, and means that those investors who bought the fund’s shares in the past are suffering losses.
Historically, since its inception in 2013, GBTC has traded at a significant premium relative to the underlying Bitcoin. However, the fund’s shares dipped to values below zero for the first time at the end of February this year, and have been trading at a discount since then.
Among the most cited reasons for this is the emergence of new competitive products on the market, such as Bitcoin exchange-traded funds (ETF) in Canada—offering less expensive options for investors—as well as the absence of new money coming into GBTC. Grayscale halted new investments in the fund in March.
GBTC, which currently has $36.54 billion in assets under management, commands a 2% fee for its services—the price its high-profile investors pay to get exposure to Bitcoin through a SEC-regulated vehicle. Additionally, the fund offers certain tax benefits, however, investors can’t sell their shares within the six months following their purchase.
05/12/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.
Total AUM: $53.1 billion$BTC $BCH $ETH $ETC $ZEN $LTC $XLM $ZEC $BAT $LINK $MANA $FIL $LPT pic.twitter.com/vLPJQhRnyD
— Grayscale (@Grayscale) May 12, 2021
GBTC investors face losses
A number of GBTC investors, including lending platform BlockFi and the Singaporean crypto asset hedge fund 3 Arrows, all have reasons to be concerned with the fund’s continued discount, as they took hefty loans hoping to get more profit from the rising premium.
Last month, one big investor in GBTC, the investment firm Marlton, wrote an open letter to the Grayscale board of directors, in which it described the discount as “abysmal”—according to the New Jersey-based company, it has lost the fund’s stockholders as much as $3.1 billion.
“It's fine for new investors into GBTC since they're getting a discount but for long term shareholders like Marlton it's not right and closed-end funds like GBTC have a lot of mechanisms they can and do employ to close that gap,” a representative for Marlton told Decrypt at the time.
According to the company, this is partially why they pay a 2% fee—to have GBTC solve the issue and bring the premium back.
Digital Currency Group—Grayscale’s parent company—recently announced it would buy up an additional $557 million in GBTC shares, bringing its total investment into the trust to $750 million.
One possible avenue for turning the negative premium around would be to turn GBTC into a Bitcoin ETF. That, however, would require the US Securities and Exchange Commission to revise its current position on Bitcoin ETFs; to date, it has rejected every application to cross its desk.