Institutions Increase Exposure to Grayscale Bitcoin Trust as GBTC Discounts Nearly 30%

Data on Glassnode shows that institutional investors are returning to accumulate Grayscale Bitcoin Trust (GBTC) stock as its discounted spot price surges to nearly 30%.

Since December 2021, several weekly trading sessions have seen investors pour between $10 and $120 million into Grayscale’s flagship fund. Meanwhile, the largest inflows, amounting to nearly $140 million, occurred in the week ending February 25.

Institutional investments in Grayscale as of September 2021 | Source: Glassnode

No sell-off yet among major GBTC supporters

The GBTC trust has attracted investments as global markets have faced successive shocks over the past few months, including a sharp sell-off in tech stocks, followed by Russia’s invasion of Ukraine. causing many fund managers to suffer heavy losses.

For instance, Cathie Wood’s ARK Next Generation ETF (ARKW), which holds $478 million worth of GBTC, is down nearly 45% year-over-year, largely due to its exposure in affected sectors. hardest hit during recent market turmoil, including technology (43.14%) and media (27.99%).

ARKW Weekly Price Chart | Source: TradingView

But in November 2021, ARKW added more than 450,000 GBTC shares to its portfolio, when their discount amounted to almost 17.5%.

Similarly, the Morgan Stanley Insight Fund (CPODX) held more than 1.5 million GBTC as of September 30, 2021, according to its securities filing with the U.S. Securities and Exchange Commission (SEC). Its full-year performance as of March 6, 2022, is around minus 43%.

Both ARKW and CPODX underperform as GBTC is down 43% over the past 12 months. However, they did not report the sale of shares of GBTC.

Institutional investments in Grayscale | Source: Swissblock Technologies, Glassnode

ETFs are being hyped?

Many factors led to GBTC’s underperformance, including increasing competition from ETFs in Canada. Unlike GBTC, ETFs allow investors to Buyback Shares, a process through which the fund can destroy shares based on supply-demand dynamics.

Digital Currency Group, the parent company of Grayscale, tried to reduce the discount by buying back GBTC shares. But its efforts were thwarted by the launch of the ProShares Bitcoin Strategy ETF (BITO), which holds futures contracts. This has caused the GBTC price to deviate further from the spot price of Bitcoin.

Grayscale Bitcoin Trust’s discount/spread to net worth | Source: YChar

Currently, Grayscale is venturing through an effort to convert GBTC from a trust into an ETF pegged to the Bitcoin price. If the SEC approves Grayscale’s application, it will cause GBTC to reset from its current discount levels to zero.

However, the SEC did not approve the single spot Bitcoin ETF application, citing the risks associated with price manipulation. Meanwhile, regulators in Canada and Europe have welcomed Bitcoin-backed investment products.

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