Grayscale Bitcoin Trust premium turns negative for the first time in five years! What does this mean for Bitcoin?

The premium rate between Grayscale Bitcoin Trust (GBTC) and Bitcoin turned negative for the first time in the past five years. What does this situation imply for Bitcoin?

Premium Rate Turns Negative for the First Time in Five Years

For a long time, the premium rate between the Grayscale Bitcoin Trust (GBTC) and Bitcoin has remained positive. Data shows that during the bull market from 2017 to 2018, the premium rate of GBTC even exceeded 100% at one point, meaning that its market price was twice the asset's net value. However, the current premium rate has dropped significantly, even turning negative at one point, resulting in a scenario of "discount".

Some analysts suggest that the negative premium of GBTC indicates a weakening buying interest from institutional investors in the traditional market and an increase in selling pressure. If this trend continues, it may lead to Grayscale ceasing to acquire Bitcoin in the market. Renowned gold supporter Peter Schiff tweeted:

"If this persists, Grayscale's Bitcoin Trust (GBTC) will no longer see inflows, leading Grayscale to stop buying new Bitcoin. Without Grayscale, the largest buyer in the cryptocurrency market, where are the new buyers? How will Bitcoin support its price?"

What Does This Mean?

The common news of "Grayscale acquiring Bitcoin" is actually not Grayscale buying for itself, but assisting clients in purchasing. GBTC is a closed-end trust fund, and only large institutions with approved permits can directly purchase GBTC from Grayscale, while other investors can only buy these unlocked shares (which require a lock-up period of at least 6 months) from these large institutions on the OTC market.

When GBTC maintains a positive premium over Bitcoin, and Bitcoin's trend is bullish, the profit that these large institutions can gain from purchasing GBTC from Grayscale will be higher than directly buying Bitcoin. This is why Three Arrows Capital, which is well-versed in the cryptocurrency market, was reported to hold a large amount of GBTC shares earlier this year.

Over the past six months, as the price of Bitcoin has continued to soar, many institutions have chosen to purchase a significant amount of GBTC shares from Grayscale, leading to a substantial increase in the circulating GBTC shares in the market.

According to data, at the end of December last year, the circulating volume of GBTC shares was approximately 628 million shares, and the current circulating volume is 692 million shares, an increase of 10% (about 64 million shares, valued at 3.09 billion USD).As a large supply enters the secondary market, if demand does not increase at the same rate, a decrease in the premium rate can be expected. As QCP Capital's CIO Darius Sit stated:

"Most ETF trading prices are lower than the net asset value. It's not a big deal."

However, this phenomenon still needs to be monitored. Once the market loses its premium space and Bitcoin's price cannot further break through, the frequency and amount of Bitcoin acquisitions by Grayscale may slow down as a result.