The value of the firm’s Bitcoin trust is now lower than the Bitcoin, which is the underlying asset itself, indicating a drastic fall in the Trust’s demand. At present, the Grayscale Trust (GBTC) Trust now trades at -12.0%, contrary to the expectation of trading at a positive premium. One of the possible reasons for the slide in the shares’ value is the increasing number of competitors that woo investors with lower management fees. According to the data released by Glassnode, in December last year, GBTC was trading at a 40% premium. However, it has been falling drastically of late. On February 22, the Trust fell from 12.7% to 5.2% and has stayed in the negative zone since then. Now, the asset is at its record low.
What Exactly Does Bitcoin Trust Mean?
Grayscale Bitcoin Trust enables investors to take advantage of the rise in crypto price without holding the digital asset at all. The firm is the one that buys Bitcoin on behalf of its client, then issues the exact amount of shares that investors are willing to buy. An amount of shares stands for a fixed quantity of Bitcoin. However, because they are being offered on the secondary market, the shares can rise above or fall below the price of the underlying asset, which is Bitcoin. Presently, a Grayscale Bitcoin Share (GBTC) now trades at 0.00094684 BTC. The share of a Bitcoin is $44.50, but GBTC is now worth $41.41.
Meanwhile, in February, Canada approved another Bitcoin ETF, Evolve, making it the second Bitcoin ETF launched in Canada. The launch enabled people to participate in cryptocurrencies using the broker platform. The first Bitcoin ETF in Canada recorded almost $170 million on the first day. Half of the amount was recorded in less than two hours of the trading, pointing to increasing popularity of Bitcoin.
The Meaning of Premium
Premium refers to the price by which the current price of shares differs from the underlying asset. A positive premium attracts investors to pay higher than the price of the underlying assets. On the other hand, a negative premium indicates that investors will pay lower than the underlying assets. If a share has positive premium price, it indicates that people demand it as they are ready to pay additional money to obtain cryptocurrencies.
A typical example is the Grayscale Litecoin that traded at 750% premium in Aug. 2021, while its BYC Cash traded at 350% in the same month. The high value was because there were no other means by which the US investors could take advantage of the crypto boom then. So those who invested earlier were able to make huge profits from LTC and BTC Cash as soon as Grayscale Trust commenced trading publicly.
A negative premium shows that the Grayscale demand has fallen. The reason for the drastic fall is not far-fetched; the firm has been facing stiff competition in the sector. After the Grayscale Bitcoin launch, SkyBridge has offered investors lower fees of 0.75%, while Osprey is offering 0.49% compared to Grayscale’s 2% fees. Meanwhile, Bitcoin has been falling since it reached an all-time high of around $50,000 last month.