One of the key aspect of the Grayscale Fund is the primary Market.
We have seen this market is not available to the retail investor, but only to institutional investors and accredited individual.
This is of course something that is not clear and the true key of GrayScale success.
The naïve Bitcoin Investor could thing Grayscale buys their Bitcoins from miners, this is an interesting rhetoric, as it also fuels the "scarcity" theme, but it is ultimately wrong, as the main suppliers of BTC are the whales, who want to profit from the huge premium their shares have on the second market.
But what can we discover on this peculiar category of shares?
What can we infer analysing at this number?
IS is true that aa large number of shares is bullish when subscribed, but an be "dangerous" in the future?
I will try to shed some light on all the above points.
How many Shares in the primary market are out there?
Of course there are many ways to discover the number of Grayscale shares, but the number is aggregate, and there is no differentiation from the primary and the secondary market.
The only place where we can have a "snapshot" of the situation is on the
Grayscale announced on January 21, 2020 To have been granted the status of SEC reporting Company:
Grayscale Bitcoin Trust Becomes SEC Reporting CompanyThis was interesting for our analysis for a precise reason:
Additionally, accredited investors who own or purchase shares from the Trust’s private placement now have an earlier liquidity opportunity as the statutory holding period of shares purchased through the private placement will be reduced from 12 months to 6 months, provided the other requirements under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”) have been satisfied.***
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***The holding period reduction will become effective after Grayscale Bitcoin Trust has been a reporting company for at least 90 days and has satisfied the other requirements under Rule 144 of the Securities Act.
So from 90 days after January 21st, March 20th 2020, the holding period of primary market share would have been reduced from 1 year to 1 month.
The easiest way to check the current number of restricted shares is to check the official GBTC market, that details such information on a
page dedicated to the security details of GBTC.
This is what you see:
page linkOn the security section you can see the details:
- Outstanding Shares: this is the total number of outstanding shares. This data is widely available.
- Restricted Shares: this is the number of shares with a selling restriction (six months from issue date)
- Unrestricted Shares: this is the residual category: common shares without selling restrictions
I have tried in any possible way to download the historical data of the restricted shares, but I failed.
So I had to think a different approach: to obtain this number with the available (public) data.
Every time a share get issued, and we know when it is done, that share get a six month holding period. So it is easy to determine which is the date until such a share will be restricted, and after that it will be unrestricted.
So the total number of restricted share will be the sum of all shares with an "unlock date" in the future.
Pretty easy to compute such a total with an Excel spreadsheet.
I added the "Restricted Shares" sheet in this
thread's spreadsheet:
spreadsheet linkBasically the "Restricted Shares" column sums all the "Inflow of restricted shares" with an "Unlock Date" in the future.
Luckily the total I obtain in the spreadsheet is very similar to the official one listed on the website. There are a number of minor reasons why those two numbers are slightly different, but I think we can safely neglect those, and concentrate on the overall meaning of this information.
The first thing we want to do is graph this information and see how it evolved in the past
(as always, you can find a continuously updated version on the spreadsheet):
Wee see that, from inception, the total number of the outstanding shares is equal to the restricted shares. At the time the holding period was one year, so basically, for the first year of the fund the restricted shares were the 100% of outstanding shares.
Nobody could sell the shares!
After an year the shares began available to trade ,and the restricted percentage began to decrease (right axis).
Of course, the slower the rate of issuance, the lower the percentage of restricted share.
We see that during the years we had a percentage of restricted shares around 20% of total outstanding shares.
Things began to become a little bit animated during the last year. The rate of issuance begun to increase dramatically, so did the percentage of restricted shares, getting up to little bit more than 30%.
Then GBTC became a SEC reporting fund on Jan 21st 2020, and 90 days later, on Apr 20th 2020, the lock up period decreased from one year to six months: six months of locked up shares became available to sella all of a sudden.
We then saw a drop in the percentage of restricted share down to 13%.
This drop was very temporary, as Grayscale wen flat out on shares issuance and was quickly back to previous level and beyond, now sitting at a whopping 35%.
One might thing then: "wait, if there's a lock on the shares, when there's the expiry of the lock period the issuers will rush to sell those to cash in the premium right?
Well, I strongly doubt this reasoning, but more on that later: let's see how it works.
In the following graph , we can see the current date on the middle, separating the "blue part" from the "red part":
The blue part are the past inflows (measured in BTC) chronologically ordered. The span of the graph is exactly six months.
The red part of the graph are the "outflows" in the coming six months.
Basically the red part is the left one flipped and "netted" of the Grayscale commission over the period (yearly commission is 2%, so over six month I took away a full percentage of the inflows).
We notice we can precisely forecast when a "big inflow" will become a "big outflow".
Does it means that when there is a big outflows there is a heightened probability of a selloff in BTC because of the selling pressure?
No, definitely not.
As we have seen in the OP, probably he who buys the GBTC shares is also selling futures, so to hedge the directionality of their bet, and be sure to capture the premium on the secondary market.
So the overall effect on the unlock date, combined from the selling on the underlying market and the buying back the short future position, actually cancel out.
This is an analysis i have seen around in the last months, so I hope now you understand that it is (probably) meaningless.
I hope you enjoyed reading this post at least as much as I enjoyed writing it.
I think it is the first time I read such an analysis around, as the restricted shares are quite an obscure object for many.
But you are not "one of the many" if you are reading this...