The premium or overpayment on the Grayscale Bitcoin Trust Securities took negative numbers. This happened for the first time since the launch of the tool in September 2013, excluding the early days.
Grayscale Trusts are issued for the benefit of accredited investors who can invest in traditional currency or cryptocurrency. After a six-month waiting period, such shares become available for sale in the secondary market, where they are most often traded at a premium to the price of the underlying asset. The overpayment is due to the interest of buyers who want to invest in cryptocurrencies, but cannot or do not want to keep them or deal with regulatory issues.
For a long time, this situation has allowed investors who have the opportunity to invest in Grayscale trusts directly, to make money on the resale of shares to those who cannot. However, data from the Skew analytical platform suggests that by selling shares now, their holders will earn less than selling the corresponding volume of bitcoin.
As in any other market, the observed dynamics can be explained by two main factors: a decrease in demand and an increase in supply. In other words, non-accredited investors may, for some reason, not want to buy GBTC shares, while accredited investors, on the contrary, tend to sell them in order to fix the premium. Stock market fluctuations in the past week may play a role here, as their participants began to limit exposure to risk.
The decrease in demand can also be explained by the emergence of alternative mechanisms for investing in bitcoin in the traditional market. Grayscale applies a fairly high bitcoin trust management rate of 2%. In addition, for investors to buy stocks at a discount now, they must be confident that the premium will return in the future. However, in the US, applications for the creation of Bitcoin ETFs have again begun, if approved, the Grayscale trust will fade into the background.
The premium rate at GBTC peaked above 40% at the end of last year and has steadily declined since then. Skew is using par, which can be expected to level out after trading opens today. One way or another, the current dynamics indicate an approach to the levels of systemic risk for the market, one of the analysts said.
To take advantage of the opportunity provided by Grayscale, accredited investors borrow bitcoins, often with leverage, to invest in a trust and settle with the lender after the sale of shares, keeping the premium received. Restricted Sellable GBTC shares can be used as collateral for Bitcoin loans. This model has always worked in the past, as GBTC shares were not only pegged to bitcoin, albeit not rigidly, but also traded above it. As a result, GBTC grew more than 10 times in a year and exceeded $ 20 billion, and lending rates in bitcoin can now be more than 6.5%.
Std_dev analyst considersthat in the current situation, when premiums are decreasing or even going into the negative zone, there is a serious threat to the market.
“If GBTC trades at a discount, there is a real possibility that these loans will be subject to margin calls or, even worse, it will turn out that lenders did not fit a lower premium scenario into their models,” he says.
The GBTC trust has a mechanism for creating shares, but there is no mechanism for their redemption. In other words, Grayscale does not accept GBTC shares to buy back the Bitcoins held in it. In this case, traders could use the arbitrage opportunity by buying up shares on the market at a discount and exchanging them for bitcoins, which would normalize the price, but this is not possible. Hence, the only way to exit GBTC is to sell the stock in the secondary market.
Should collateral fall, lenders will begin to liquidate collateral to mitigate risk and impose margin requirements on GBTC investors. Those, in turn, will have to look for assets to pay off it, especially if the collateral is provided in illiquid GBTC shares. The analyst admits that this factor is already having a negative impact on the price of bitcoin and other related assets, and over time it can only get worse.
“How to meet the margin requirement when an illiquid position takes a deplorable turnover? In any available way. This is what people are talking about when they say that all correlations go up to 1 during a crisis. You sell everything you can to raise money to meet your margin requirement. I think this is extremely unlikely, but it will be very bad if it happens. I suspect this will put serious pressure on the bitcoin price, ”adds std_dev.
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