Grayscale GBTC is a trust that holds over 650k Bitcoin for its clients. To provide this service, the fund manager charges a 2% annual fee, and to make things worse, there is no redemption available.
Even though GBTC shares trade on stock markets in the US since 2015, the only way to divest is by making a sale on the secondary market. Unlike an Exchange Tradable Fund (ETF), the trust offers no way to convert the shares back to the equivalent Bitcoin fraction.
The Lockup Period
Institutional investors can buy GBTC shares directly from Grayscale, either using cash or handing over the equivalent Bitcoin quantity. This feature gives them a great advantage, as the GBTC quote on the secondary market can trade with a premium.
However, these investors can only sell the GBTC shares on stock markets after a six-month lockup period. Before the birth of the Canadian ETF, Grayscale’s product was the only way for 401k and mutual funds to invest in Bitcoin.
When will the Next Unlock Occur?
To find out such numbers, one needs to check when the last relevant issuings took place.
Mid-January marks a critical period, as 35k equivalent in Bitcoin have been added, according to bybt.com data.
The last time a similar event happened was on June 20, when 30k equivalent in BTC was finally available for institutional investors to sell. That week marked the $28,800 low, therefore causing traders to get cold feet this time around.
Will Investors Dump Their BTC?
First of all, only GBTC shares will be released for sale. As the Trust does not offer a redemption program, those have to be sold on secondary markets to other investors. Currently, GBTC is trading at a 10% discount to the equivalent BTC held by the fund.
The reason? Likely because the Canadian ETF offers cheaper fees and no impairment risk. However, institutional investors seem to have little incentive to dump their GBTC shares below the fair value.
What is the Impact on BTC Price?
There shouldn’t really be one, as GBTC shares might change hands, but the fund’s BTC position cannot be moved. However, those institutional investors aiming to profit from the premium that existed in the past were a huge demand driver for Bitcoin.
That buying pressure will unlikely return, ever, considering investors now have the Canadian ETF.
Not really. Digital Currency Group (DCG), the parent company of Grayscale, will buy up to $750 million GBTC shares. However, they’re doing it in the same way as any regular client on secondary markets, with no special privileges.
That definitively puts some pressure to reduce the discount, but by no means is a guarantee that it will work. Anyway, as soon as it closes the gap, there will be enormous selling pressure from those institutional investors free from their lockup periods.
Can GBTC be Converted into an ETF?
Grayscale said that it is “100% committed” to converting GBTC into an ETF as soon as the U.S. The Securities and Exchange Commission approves it. Even so, this option currently remains a distant dream, as the regulator continuously delays or rejects any similar request.
In a nutshell, the fund’s performance does not necessarily directly impact Bitcoin, although it might be used as a gauge of real investors’ demand. Even if those institutional investors decide to sell with a significant discount, it does not mean their appetite for cryptocurrency has vanished.