Grayscale Bitcoin and Ethereum shares rose sharply this week, reflecting increased demand among institutional investors. The GBTC and ETHE premiums at Grayscale are on the rise, returning to their highs.
Since the end of February, Grayscale Bitcoin Trust has been trading below the price of BTC, with a reduction compared to the main cryptocurrency. The trust offers large investors exposure to the pioneering digital asset without owning the actual currency.
Historically, the GBTC has always traded at a premium for Bitcoin. While people can buy stocks that cost more than the underlying asset, this has also allowed them to charge a premium. Accredited investors can borrow Bitcoin to subscribe to GBTC shares, followed by a six-month foreclosure.
Institutional investors had to accept the high management fees of the GBTC and long payback periods due to the lack of options in the market.
Once the lock expires, they can sell the shares in the secondary market to retail investors, ideally for a premium. The proceeds they receive would be used to return the borrowed coins from the lender, pocketing the difference.
The premium has evaporated in recent months as retail demand moves towards cheaper products, including Bitcoin exchange-traded funds approved in Canada. Since the trust trades at a discount, long-term shareholders have faced a major disadvantage.
On May 13, Glassnode data showed the GBTC premium on net asset value fell to -21.73%, the lowest point in the fund’s history.
Catalytic events linked to the increase in the grayscale premium
The launch of the Simply US Equity PLUS GBTC ETF, which invests 15% of the portfolio in Bitcoin through the trust, pulled its premium out of dangerously high discount territory.
This week, the GBTC discount on Grayscale fell to -3.8% from -18.2%. The release of new shares towards the end of June could anticipate a further rise in premiums. Historically, unlocking times have been bullish for Bitcoin for those involved in arbitrage trading.
The recent drop in the price of Bitcoin, coupled with the reduction on GBTC, has likely also made the asset more attractive to high net worth individuals.
Meanwhile, GBTC’s recent $ 250 million purchase of Grayscale parent company DCG and the launch of the Simplify ETF add to the positive demand for Grayscale crypto trust stocks.
Grayscale might not be a household name outside of the cryptocurrency world, but both trusts are huge. Grayscale Ethereum Trust has $ 8.2 billion in assets under management. The much larger Grayscale Bitcoin Trust weighs nearly $ 25 billion in assets.
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