Connect with us

Bitcoin

Will Grayscale Convert GBTC to a Bitcoin ETF?

Published

on

  • Grayscale Bitcoin Trust’s premium has stayed negative for a month, which could impact on the wider cryptocurrency space.
  • One solution would be to introduce a Grayscale Bitcoin ETF, if the SEC allows it: but how would the firm choose to do so?

The Grayscale Bitcoin Trust (GBTC), a popular way for investors to get exposure to Bitcoin in the form of shares, has now had a negative premium for an entire month. This means the price of each share remains below the corresponding amount of Bitcoin it represents.

This negative premium is new terrain for Grayscale’s institutional investors. In the past, those wealthy investors have purchased shares in the trust in order to engage in a form of arbitrage, flipping them to retail investors at a profit months later once a regulatory “lock-up period” expired.

Grayscale premium turns negative
The Grayscale premium has turned negative. Image: CryptoQuant.

Now, the negative premium appears to be the cause of a recent collapse of inflows into the GBTC. As Bitcoin lending firm BlockFi CEO Zac Prince told the What Bitcoin Did podcast, one would have to be a “complete moron to subscribe to create new shares of GBTC while the liquid shares are trading at a discount.” He suggested investors might as well buy the shares on the open market if they want to buy any.

BlockFi itself has purchased significant portions of GBTC shares in the past, but now the new negative premium not only eliminates the arbitrage opportunity, it makes the shares themselves a shaky investment, especially in light of Grayscale charging an annual 2% fee to obtain and package the underlying Bitcoin.

The investment has stopped
Inflows into GBTC have flatlined. Image: CryptoQuant.

In fact, a report by crypto insights platform ByteTree stated that, if the negative premium remains and the selling pressure increases, this “could morph into a systemic risk.” The reason behind this is the sheer size of the Grayscale Bitcoin Trust, which currently holds 655,000 Bitcoin ($37.5 billion), according to data provider CryptoQuant—an amount significantly higher than any other fund.

Trying to turn the premium positive

As a result, Grayscale is trying to return the price of the shares to its Net Underlying Valuation, or NAV. Its parent company Digital Currency Group announced on March 10 that it plans to purchase up to $250 million of GBTC shares with its own cash, helping to stimulate demand.

Advertisement

“Grayscale has a tremendous incentive to get the liquid shares back to NAV or a premium because, otherwise, their spigot of new subscriptions is completely shut down,” Prince noted.

But the cause of the premium could also be a way for Grayscale to get itself out of this pickle. As reported by The Block, a report by JP Morgan suggested that the recent launches of two Bitcoin ETFs in Canada (since the report, a third has launched) have drawn investment away from the GBTC.

Meanwhile, institutional investors who have unloaded shares in order to collect on the arbitrage opportunity, have dragged prices down, according to JP Morgan. Other Bitcoin trusts offering lower fees have also emerged in the US, like Osprey Funds and Skybridge Capital. Prince pointed out that there are also some ETFs, like Ark W, which hold GBTC shares. So when Ark W has outflows, it’s forced to sell GBTC, adding to the selling pressure.

Advertisement

But it’s the ETF competition that brings about an opportunity for Grayscale.

The difference between a trust and an ETF

The Grayscale Bitcoin Trust was formed because the US Securities and Exchange Commission (SEC) has not yet granted any company permission to create a Bitcoin ETF. It has repeatedly delayed ETF applications—claiming, among other reasons, that the Bitcoin market was not ready yet.

A Bitcoin coin next to ETF letters
A Bitcoin ETF would track the price of Bitcoin. Image: Shutterstock.

Like a Bitcoin ETF, the Grayscale Bitcoin Trust was formed as a way to let institutional investors get exposure to the price of Bitcoin without actually owning Bitcoin itself. However, the main drawback is that, unlike an ETF, the trust doesn’t allow investors to sell their shares to Grayscale and receive the underlying Bitcoin back.

“There is currently, for the Grayscale trusts at least, no redemption mechanism. So things can go in but they can’t come out,” Prince said.

Advertisement

Without a redemption process, there’s no way for GBTC owners to swap their shares for Bitcoin. This friction point prevents investors or market markets from returning the shares to the price of the underlying Bitcoin. And it’s why Grayscale appears to be looking into creating a Bitcoin ETF.

The options for a Bitcoin ETF

There are hints that Grayscale is planning to introduce some form of Bitcoin ETF, with multiple job filings on its careers page seeking to fill roles for ETF specialists. Grayscale CEO Michael Sonnenshein told Decrypt that, “If Bitcoin ETFs, and other digital currency ETFs, were to be allowed by the SEC, it’s a safe bet to say that Grayscale would be very interested in operating a fund that draws on our history of operational excellence to meet what we anticipate would be a surge in investor demand.”

“Beyond that, we don’t discuss future business plans,” Sonnenshein added.

Advertisement

While no ETF has yet been approved by the US Securities and Exchange Commission, the existence of three Bitcoin ETFs in Canada, one in Latin America and multiple Bitcoin electronic-traded notes (ETNs) in Europe, could put pressure on the SEC to change its position. If it does so, Grayscale will be able to join the fray—giving it two options going forward.

Grayscale’s first option is to convert the GBTC into an ETF, which Prince suggested could happen. He said that, were this to occur, it could enable the value of the shares to return to NAV, or even to a premium.

Messari CEO Ryan Selkis poured cold water on this idea. In a report on March 17, he pointed out that the SEC has previously issued a cease-and-desist order against Grayscale and Genesis Global Trading for offering redemptions on an earlier Bitcoin investment vehicle. He also claimed that converting GBTC to a Bitcoin ETF would force it to cut its 2% annual fee, which he described as the exchange’s golden goose—something it might be reluctant to lose.

Advertisement

It’s notable that Grayscale actually contemplated converting the GBTC into a Bitcoin ETF in 2017, but chose not to follow through with this idea at the time, according to Business Insider.

Grayscale’s second option is to introduce a Bitcoin ETF separately into its line-up, with the option of converting the GBTC over at a later date. This is the strategy currently being used by Skybridge Capital, which has filed for a Bitcoin ETF Trust to sit alongside its current Bitcoin Fund.

Bloomberg Intelligence ETF analyst James Seyffart argued this would be the right move. “There are definitely pros and cons to doing this but it will allow them to maintain that massive 2% fee on $GBTC ($760 million annually at current levels) while taking advantage of their absolutely dominant liquidity lead vs every other traded bitcoin fund on the planet,” he tweeted on March 16.

Advertisement

But until the SEC decides to approve a Bitcoin ETF, Grayscale’s hands will remain tied.

Advertisement

Bitcoin

Bitcoin Price Flash Crashes for Second Time in a Month in the US

Published

on

The price of bitcoin (BTC) on Binance.US, the US-based exchange affiliated with Binance, briefly crashed to as low as USD 8,200 today – a drop of 87% – before recovering again. The crash marks the second time in a month when bitcoin prices in the US have briefly disconnected from the rest of the world. 

Today’s flash crash, which was one of the most significant on a major exchange in bitcoin’s history, all happened within less than 1 minute, the BTC/USD price chart from Binance.US showed. 

Although the flash crash was all over within a minute, the trading volume showed that a significant number of coins did change hands during the crash, indicating that some traders may have been able to fill orders for bitcoin at extremely low prices.

Advertisement
BTC/USD on Binance.US. Source: TradingView

Flash crashes can happen when large market sell orders are sent to exchanges without sufficient liquidity on its order books, for instance, because a large trader accidentally placed the order as a market order instead of a limit order.

Today’s flash crash on Binance’s US exchange is the second such incident in a month in the US. On September 20, a data feed for crypto prices called Pyth that is used by some of the largest financial institutions on Wall Street showed a 90% crash in the price of bitcoin.

The feed briefly showed bitcoin at a price of USD 5,402. However, a similar price crash was nowhere else to be seen. Two days later, in a report about the incident, Pyth concluded that the abnormally low price was indeed a technical glitch, “caused by the combination of (1) two different Pyth publishers publishing a near-zero price for BTC/USD and (2) the aggregation logic overweighting these publishers’ contributions.”

Discussing today’s incident on Twitter, many traders complained about being forced by US regulations to use exchanges such as Binance.US, which has thin order books and low liquidity compared to the international version of the exchange.

Advertisement

No statement has yet been made from Binance or Binance US regarding today’s flash crash.

At 16:11 UTC, BTC trades at USD 63,180 and is down by almost 6% in a day, trimming its weekly gains to 10%.

News Source

Advertisement
Continue Reading

Bitcoin

Mt. Gox Bitcoin Payouts On Horizon After Creditors Approve Plan

Published

on

The light finally appears to be at the end of the tunnel for the Mt. Gox creditors, who have approved a plan that will let them choose to receive some of the coins they have been waiting years for.

In a translated letter, Nobuaki Kobayashi, the Japanese lawyer and trustee for the now-defunct bitcoin (BTC) exchange, explained that “approximately 99%” of the creditors had voted in favor of an offer that has since been put before a branch of the Tokyo District Court.

A voting process that began back in May this year wrapped up earlier this month.

Advertisement

The court has since confirmed the order, although there was no mention of an exact timescale for the token refunds.

The trustee wrote that an announcement “will be made to rehabilitation creditors on the details of the specific timing, procedures and amount of such repayments.”

However, Kobayashi wrote that the process would “finalize” and become “binding” in “approximately one month from” October 20.

Advertisement

The creditors will then be able to file their claims through a website, by filing a proof of rehabilitation claim.

Kobayashi wrote that the trustee “would like to express sincere gratitude to all involved parties for their understanding and support.”

The BTC exchange was once the world’s biggest, but spectacularly folded in 2014 following a spate of hacking attacks that saw raiders make off with thousands of BTC tokens.

Advertisement

Creditors have been trying to recover their funds ever since, but have been locked in a protracted legal struggle that has rumbled on over the years.

The Fortress Investment Group has previously offered creditors some 80% of claims. But the trustee promised a higher figure, closer to about 90%. The tokens lost in the hacks will likely have to be written off, however, meaning that payouts are going to be a fraction of the original amounts held.

News Source

Advertisement
Continue Reading

Bitcoin

JPMorgan: Inflation Hedge Narrative Propelled Bitcoin’s Price to ATH

Published

on

According to some JPMorgan analysts, bitcoin hit an ATH because people started investing in it as a better hedge against inflation than gold.

Strategists at the financial institution JPMorgan Chase & Co. argued that the reason behind BTC’s all-time high price is not the launch of the ProShares Bitcoin Strategy ETF. Instead, concerns about the rising inflation made the digital asset an attractive investment option, and that led to its recent rally.

Gold Failed, BTC Prevailed

The moment, which many people in the cryptocurrency community have been waiting for, finally arrived on October 19th when the ProShares Bitcoin Strategy futures-backed ETF, named BITO, started trading on the New York Stock Exchange. It became the first such product approved in the United States.

Advertisement

During the first day of its launch, it generated massive trading volumes and even became the second-highest traded fund ever. Shortly after, BTC’s USD value headed straight north towards a new all-time high at roughly $67,000.

Still, according to JPMorgan strategists, including the managing director Nikolaos Panigirtzoglou, another factor drove bitcoin to that milestone. The specialists indicated that the cryptocurrency had replaced gold as a hedge against inflation in recent months, which had propelled the price north:

“By itself, the launch of BITO is unlikely to trigger a new phase of significantly more fresh capital entering bitcoin. Instead, we believe the perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September.”

JPMorgan’s team noted that the last couple of weeks were not that successful for the precious metal. Taking a look at a broader period, bitcoin ETF’s have significantly outpaced gold ones, as the strategists revealed:

Advertisement

“This flow shift remains intact supporting a bullish outlook for Bitcoin into year-end.”

Bitcoin Funds vs. Gold ETFs: Source: JPMorgan
Bitcoin Funds vs. Gold ETFs Inflows: Source: JPMorgan

Can BTC Now Change The Stance of The Big Boss?

Jamie Dimon – Chief Executive Officer of JPMorgan – is among the most prominent critics of the leading digital asset. Still, it seems like he has started releasing the tight grip on it.

It all started in 2017 when the top executive called bitcoin a “fraud.” Dimon did not stop there and warned that “it’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.” Shortly after, though, he regretted making that comment, and his financial institution became much more accepting of BTC.

Last year, Dimon weighed in on the matter once again. This time he was softer in his comments saying that bitcoin is not his “cup of tea” and that he has no personal interest in it.

Advertisement

A few days ago, the CEO returned to his negative phase, describing BTC as “worthless.” Nevertheless, he acknowledged that most of JPMorgan’s clients do not share his opinion and show an increasing demand for digital asset services.

With BTC charting a new all-time high, the crypto community is yet to find out whether Dimon will maintain his hostile viewpoint on the matter or rather soften a bit and allow more offerings to his bitcoin-hungry customers.

News Source

Advertisement
Continue Reading