Grayscale Bitcoin Fund Sinks Near 30% Discount on Bitcoin Price.

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Quote from: The Sceptical Chymist on January 19, 2022, 07:15:56 PM

This part of the article describing how Grayscale's holdings are structured is confusing to me:

Quote

The trust doesn’t allow for share redemptions in the same manner as an exchange-traded fund, meaning that the supply of shares can’t be created and destroyed with shifting demand. As a result, the shares tumbled deeply as investors pulled sharply back from cryptocurrencies, exacerbating the discount in the share price.

So they're not like a mutual fund where you can just buy and sell shares on the market? I admit I'm not very familiar with Grayscale except for them being a large institutional holder of bitcoin, but if one is able to purchase whatever shares they're offering at a discount to bitcoin's price (if that's indeed what the article is implying), why hasn't someone done so before it made the news?

The shares of the trust are freely tradeable, but the the underlying assets in the trust are not. Shares are created by depositing bitcoins into the trust, but those shares cannot be redeemed for the bitcoins in the trust. It is basically a one-way peg.

There are many possible reasons for why there is a discount, including the possibility that there will always be a discount.

In contrast, shares in an ETF can be redeemed for the underlying assets (by a so-called "Authorized Participant"). If there is a discount, then APs will buy and redeem the shares, and then sell the assets for a quick profit. This action reduces the discount by raising the price of the shares and (in a small way) lowering the value of the assets.

It works the other way for ETFs, too. If there is a premium, then APs will buy and deposit assets for shares, and then sell the shares for a quick profit. This action reduces the premium by lowering the price of the shares and (in a small way) raising the value of the assets.

Mauser

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The Grayscale fund is quite big but still is having issues balancing supply and demand. As a physical backed fund, it needs to always buy or sell the underlying bitcoins, which is not always possible. An ETF fund would have it much easier, it could issue or take back the shares without any need to trade the bitcoins. The problem here is of course the security, a physical backed funds provides a much higher level of security, that is why if I had to choose a fund to invest I wouldn't go for an ETF. Most of us here like to own their crypto coins directly, an ETF fund wouldn't be a good fit. If the Grayscale bitcoin fund keeps trading below the Bitcoin price itself it would be a good buy for us. It just means that more owners of the fund want to sell their shares no matter the price. That is a good opportunity to take the profit once bitcoins rise again.

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Quote from: bitmover on January 19, 2022, 01:28:40 PM

Quote

One of the biggest casualties of the cryptocurrency selloff is the Grayscale Bitcoin Trust.

The $27 billion fund (ticker GBTC) has plunged nearly 17% so far in 2022, outpacing Bitcoin’s nearly 9% decline. As a result, GBTC’s price closed 26.5% below the value of the Bitcoin it holds on Tuesday, widening GBTC’s so-called discount to record levels, according to Bloomberg data.

It’s a dynamic that’s plagued GBTC for months. The trust doesn’t allow for share redemptions in the same manner as an exchange-traded fund, meaning that the supply of shares can’t be created and destroyed with shifting demand. As a result, the shares tumbled deeply as investors pulled sharply back from cryptocurrencies, exacerbating the discount in the share price.

https://www.bloomberg.com/news/articles/2022-01-19/biggest-bitcoin-fund-sinks-toward-30-discount-in-crypto-selloff

This is impressive. Grayscale Bitcoin Trust fund 's price is 26.5% below bitcoin's price.

Due to regulation issues (such as the creation of supply of shares) the fund was not able to hold a fair price, due to the big sell-off.

An ETF would solve this problem, and GBTC is basically waiting for that.

Is it a good buying opportunity for this GBTC, with 26% discount? I wouldn't risk my money there. I don't consider this fund to be really bitcoin, but just a bank product pegged to bitcoin (or trying to do so).

If you have easy access to the markets and some money to spare it is not the worst decision you could take, I agree that it is not bitcoin and it should not be treated as such, but when there is such a disparity between the price of bitcoin and this kind of fund then this is a good arbitrage opportunity, and I doubt it would last that long as many others are going to have the same idea, so I expect a recovery of this fund during the next weeks.

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Quote from: bitmover on January 19, 2022, 01:28:40 PM

Due to regulation issues (such as the creation of supply of shares) the fund was not able to hold a fair price, due to the big sell-off.
An ETF would solve this problem, and GBTC is basically waiting for that.

It will solve their problems and the ones of the poeple still holding shares, but the source of it it's not going to be solved, if poeple are really wanting to get out of it they would drop even ETF shares, but now it would also influence the real price if there are no buyers. Besides, the problem is why are people selling in the first place and I really don't think the real investors and not speculators would move to ETFs, who would dump at any tweet, the long-term players would probably embrace premium insured storage solutions like those offered by Coinbase or Bitgo.

In my opinion, a thing like GBTC shouldn't have existed in the first place in a healthy environment.

Quote from: The Sceptical Chymist on January 19, 2022, 07:15:56 PM

On a related note, I've been wondering about companies like MSTR that hold a lot of bitcoin--and what their shareholders are thinking right about now. I did notice MSTR's stock has taken quite a hit. In the beginning of November, their share price was over $800, but now it's dipped below $500. Yikes.

For a company that is 90% BTC, the tumble was normal, their average buy price was $30k, back in November they had $38k profit now they have $12k, a drop of 60% in terms of profit would for sure trigger a sell.
Quite funny they are under the YOY price, so again another case of far worse performance than buying BTC directly.

laredo7mm

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Quote from: arallmuus on January 19, 2022, 04:06:50 PM

Quote from: magneto on January 19, 2022, 03:36:12 PM

I feel like the people who invest in this fund is simply paying a tax for not understanding how to use bitcoin directly.

Imho it makes zero sense for people to be investing in GBTC even at these discounts - I would only hold BTC for the reason of protecting against a fiat/government collapse, which is not going to be the case for a bitcoin fund.

Most people dont even understand what 'cryptocurrency' means to begin with hence people invest in this kind of trust fund. Completely understandable because some people probably doesnt want to go with all the hassle of keeping your own coins safe or whatsoever, the elderly probably wont even understand what a private key means

Elder investors do not feel comfortable with Bitcoin or any other valuable asset keeping in their hands. They want to make a profit by investing that money in the custody of a bank, government, or company. So they like to invest in trust. Also managing and creating these trusts can be done through much less expensive and much less paperwork. That is why many people like to use it.

GBTC cannot be called ordinary shares because its shareholders receive a portion of a trust, not just the whole. However, the difference between GBTC and other trusts is that it only holds BTC while other trusts hold different commodities or currencies. However, no shareholder can claim to be the owner of Bitcoin because no shareholder is holding any Bitcoin. GBTC shareholders should also keep in mind that the Investment Companies Act of 1940 does not mention any law regarding grantor trusts. Therefore, GBTC shareholders will not get any legal protection which makes GBTC valuable for its investors.

I am not against any investment in it but I want to say investors should be aware of their fund's security.

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Quote from: bitmover on January 19, 2022, 01:28:40 PM

Quote

One of the biggest casualties of the cryptocurrency selloff is the Grayscale Bitcoin Trust.

The $27 billion fund (ticker GBTC) has plunged nearly 17% so far in 2022, outpacing Bitcoin’s nearly 9% decline. As a result, GBTC’s price closed 26.5% below the value of the Bitcoin it holds on Tuesday, widening GBTC’s so-called discount to record levels, according to Bloomberg data.

It’s a dynamic that’s plagued GBTC for months. The trust doesn’t allow for share redemptions in the same manner as an exchange-traded fund, meaning that the supply of shares can’t be created and destroyed with shifting demand. As a result, the shares tumbled deeply as investors pulled sharply back from cryptocurrencies, exacerbating the discount in the share price.

https://www.bloomberg.com/news/articles/2022-01-19/biggest-bitcoin-fund-sinks-toward-30-discount-in-crypto-selloff

This is impressive. Grayscale Bitcoin Trust fund 's price is 26.5% below bitcoin's price.

Due to regulation issues (such as the creation of supply of shares) the fund was not able to hold a fair price, due to the big sell-off.

An ETF would solve this problem, and GBTC is basically waiting for that.

Is it a good buying opportunity for this GBTC, with 26% discount? I wouldn't risk my money there. I don't consider this fund to be really bitcoin, but just a bank product pegged to bitcoin (or trying to do so).

Of course it is a good idea! this is like a mega-arbitration possibility and I am getting on-line right now. Except that I would rather not, simply because I like to hold my own bitcoin. Even if some is on an exchange, it is there for a good reason. Taking a thrid party custodial and collateral risk makes little sense with the exception of being able to include in the taxt wrappers that some countries have.

crwth

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If you have extra funds to put into this asset, why not, right? As long as you can manage the funds and risks involved in it. Is it always going to be a challenge to invest in the right places right? It is tempting knowing that it is at a discounted rate, but I think they will do all they can to correct all the factors. It's good that they have the mother company, which can somehow manage the market by buying in with the shares.

adaseb

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Yes I am surprised why this discount keeps growing larger and larger. It doesn’t really make sense why it would be this low. I understand that the BITO ETF has lower fees however for people to sell enough to cause a discount of almost 30% is very crazy.

And yes you can easily arb it and wait and collect the 30% however if it was this easy why wouldn’t someone like Warren Buffet do it already? Since it seems like free money at this point. There must be something else going on. Maybe getting the GBTC ETF would be easy and hence the discount.

The Sceptical Chymist

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This part of the article describing how Grayscale's holdings are structured is confusing to me:

Quote

The trust doesn’t allow for share redemptions in the same manner as an exchange-traded fund, meaning that the supply of shares can’t be created and destroyed with shifting demand. As a result, the shares tumbled deeply as investors pulled sharply back from cryptocurrencies, exacerbating the discount in the share price.

So they're not like a mutual fund where you can just buy and sell shares on the market? I admit I'm not very familiar with Grayscale except for them being a large institutional holder of bitcoin, but if one is able to purchase whatever shares they're offering at a discount to bitcoin's price (if that's indeed what the article is implying), why hasn't someone done so before it made the news? Markets are much more efficient than this seems to suggest.

On a related note, I've been wondering about companies like MSTR that hold a lot of bitcoin--and what their shareholders are thinking right about now. I did notice MSTR's stock has taken quite a hit. In the beginning of November, their share price was over $800, but now it's dipped below $500. Yikes.

arallmuus

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Quote from: magneto on January 19, 2022, 03:36:12 PM

I feel like the people who invest in this fund is simply paying a tax for not understanding how to use bitcoin directly.

Imho it makes zero sense for people to be investing in GBTC even at these discounts - I would only hold BTC for the reason of protecting against a fiat/government collapse, which is not going to be the case for a bitcoin fund.

Most people dont even understand what 'cryptocurrency' means to begin with hence people invest in this kind of trust fund. Completely understandable because some people probably doesnt want to go with all the hassle of keeping your own coins safe or whatsoever, the elderly probably wont even understand what a private key means

Quote from: bitmover on January 19, 2022, 01:28:40 PM

Is it a good buying opportunity for this GBTC, with 26% discount? I wouldn't risk my money there. I don't consider this fund to be really bitcoin, but just a bank product pegged to bitcoin (or trying to do so).

It is but at the same time, this thing actually help to spread awareness to the mass about bitcoin so I dont really see any issue with it. People will eventually start to buy a small portion of their own bitcoin instead of keep investing on bitcoin trust fund

magneto

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I feel like the people who invest in this fund is simply paying a tax for not understanding how to use bitcoin directly.

Imho it makes zero sense for people to be investing in GBTC even at these discounts - I would only hold BTC for the reason of protecting against a fiat/government collapse, which is not going to be the case for a bitcoin fund.

But seems like that markets are anticipating a much worse fall in BTC prices in this bear cycle still... Which is interesting.

_act_

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Quote from: bitmover on January 19, 2022, 01:28:40 PM

This is impressive. Grayscale Bitcoin Trust fund 's price is 26.5% below bitcoin's price.

If I will be real about this, we do not know if bitcoin price will continue to fall but this is worth the risk because bitcoin will not fail. The reason I said this is because no matter how long the bear time will last, the bull time is coming and because the price will increase than today's price and increase higher.

If bitcoin price is $42000 when I was writing this, with 26% off, the price to buy GBTC will be $30870 or lesser. but I will advice you to buy it if you want to keep it for long because short time speculation can be wrong. Read the GrayScale TOS, if it favour you, you can buy it.

fiulpro

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Anything that is allowing you to have around 30% discount on bitcoins especially during this time when the price is right for the buying as well. I do think that this 26.5% buying opportunity will be taken advantage of by the people extremely fast as well, the demand and supply rule applies everywhere, I have seen some wallets on which the buying and selling price was considerably higher as well. Sometimes the price changes according the country as well based on supply and demand ofc, but this probelm can be easily solved by the integration of wallets and sites worldwide. Then again when you would be buying your bitcoins from the Grayscale Bitcoin trust you won't have full authority over your coins. But then again you would be trading through a brokerage fund which means that you would be paying there as well, assess all the cost first. If the cost is considerably low then ofc do it but there are hidden charges I presume, look for those first.

bitmover

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Quote

One of the biggest casualties of the cryptocurrency selloff is the Grayscale Bitcoin Trust.

The $27 billion fund (ticker GBTC) has plunged nearly 17% so far in 2022, outpacing Bitcoin’s nearly 9% decline. As a result, GBTC’s price closed 26.5% below the value of the Bitcoin it holds on Tuesday, widening GBTC’s so-called discount to record levels, according to Bloomberg data.

It’s a dynamic that’s plagued GBTC for months. The trust doesn’t allow for share redemptions in the same manner as an exchange-traded fund, meaning that the supply of shares can’t be created and destroyed with shifting demand. As a result, the shares tumbled deeply as investors pulled sharply back from cryptocurrencies, exacerbating the discount in the share price.

https://www.bloomberg.com/news/articles/2022-01-19/biggest-bitcoin-fund-sinks-toward-30-discount-in-crypto-selloff

This is impressive. Grayscale Bitcoin Trust fund 's price is 26.5% below bitcoin's price.

Due to regulation issues (such as the creation of supply of shares) the fund was not able to hold a fair price, due to the big sell-off.

An ETF would solve this problem, and GBTC is basically waiting for that.

Is it a good buying opportunity for this GBTC, with 26% discount? I wouldn't risk my money there. I don't consider this fund to be really bitcoin, but just a bank product pegged to bitcoin (or trying to do so).

Topic: Grayscale Bitcoin Fund Sinks Near 30% Discount on Bitcoin Price. (Read 126 times)