GBTC Premium Down 10%: Will Bitcoin Drop in Price or is ETF Hype Rising Again?

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The premium on Bitcoin Investment Trust (GBTC), a publicly tradable Bitcoin instrument operated by Grayscale Investment, a $2 billion cryptocurrency fund and subsidiary of Digital Currency Group (DCG), has dropped by 10 percent in the past week.

Tyler Jenks, the president of Lucid Investment, who operated as an analyst in the traditional finance sector for over 4 decades, stated that the decline in the premium on GBTC is attributable to two major factors: a potential drop in the price of Bitcoin or a shift in interest from GBTC to exchange-traded funds (ETFs).

“GBTC premium down to below 10%. In the past, this would be a screaming buy. Not this time. Either Bitcoin is about to go much lower, AND/OR, Big money is betting on a new Bitcoin ETF,” Jenks said.

Why GBTC Premium is Relevant

Since its launch in 2016, GBTC has consistently seen substantial premium rates on its share price that represents 0.1 percent of the price of BTC. Currently, in OTC Markets, GBTC is being traded at $7.73, which means that investors in the traditional finance sector are trading BTC at a price of around $7,730.

Investors purchase Bitcoin from the Bitcoin Investment Trust and Grayscale with a substantial premium because it remains as the closest publicly tradable instrument to an ETF.

“Bitcoin Investment Trust is a traditional investment vehicle with shares titled in the investors name, providing a familiar structure for financial and tax advisors and easy transferability to beneficiaries under estate laws,” the Grayscale team explains.

GBTC is supported by a network of trusted service providers and Bitcoin owned by the fund are stored in the vaults of Xapo, to ensure the safety of customer funds.

Hence, accredited investors that do not have sufficient knowledge to invest in crypto through digital asset exchanges or are not permitted by law to invest in unregulated markets apart from the stock market can easily invest in the cryptocurrency market through GBTC.

However, the decline in the premium on GBTC suggests that either investors are losing interest in Bitcoin or are simply moving away from GBTC to other alternatives.

As of now, alternatives in the US market do not exist. If the interest towards GBTC is dropping, then it is highly likely due to increasing anticipation towards the emergence of alternative solutions like Seba in Switzerland.

ETF Alternatives

Last week, CCN reported that a group of executives at UBS, the largest commercial bank in Switzerland, raised $104 million to launch the first fully licensed cryptocurrency bank by obtaining a license from Finma, the Swiss financial authority.

“Our vision is when you log in into your online banking, you’d have access to crypto and fiat within one account,” Seba Chief Executive Officer Guido Buehler said.

These alternatives, like Seba, Bakkt, and Coinbase Custody offer the same merit as GBTC and XBT Provider, an exchange-traded note (ETN), which as several investors said, reduces the relevance of GBTC in the cryptocurrency market.

It is unlikely that anticipation towards the approval of a Bitcoin ETF is leading to a drop in the premium on GBTC, as the final approval date of most ETFs filed with the US Securities and Exchange Commission (SEC) is in 2019.

Featured image from Shutterstock.

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POSTED IN: Bitcoin Analysis, News
Hong Kong-Based Finance and Cryptocurrency Analyst / Writer. Contributing regularly to CCN and Hacked. Offering cryptocurrency news and Insights Into Asian Market (South Korea, Japan, and more).