Grayscale Investments has suspended accepting deposits into its Bitcoin-based trust. This was preceded by a drop in overpayment on trust shares to a record -15%.
“The private placement of the Grayscale Bitcoin Trust is offered on a periodic basis throughout the year and is currently closed,” the company said in a posting on its website.
Throughout the history of the instrument, GBTC shares have traded above the corresponding share of bitcoin most of the time. Accredited investors can deposit fiat currency in a trust at the price of bitcoin or directly deposit cryptocurrency for the issuance and subsequent resale of shares to OTC market participants. The increased demand from such participants created an opportunity for arbitrage, whereby direct investors, after a six-month holdover period, could sell shares at a premium.
This strategy was highly profitable as long as the markup remained in the 5 to 40 percent range. The situation changed on February 27 when the overpayment turned into a discount. On March 5, it dropped to -15%. According to reports to the US Securities and Exchange Commission, more than 5% of GBTC shares at that time were held by BlockFi and the arbitration arm of Three Arrows Capital, Cointelegraph notes.
The negative premium was preceded by the launch of two exchange-traded funds (ETFs) based on bitcoin in Canada. Purpose Bitcoin ETF has concentrated 11,446 BTC ($ 584 million) under management in less than two weeks since it opened. While this amount may seem insignificant compared to the $ 35 billion in GBTC, ETFs are more attractive to investors in terms of risk / reward ratio. Purpose Bitcoin ETF charges a 1% fee versus Grayscale’s 2% fee, has no retention requirements and is directly available to retail investors.
In addition, in August 2020, Grayscale issued GBTC shares in a volume equivalent to 36,000 BTC. The mandatory storage period for these shares expired in February 2021. At the current exchange rate, their value is about $ 2 billion.
Yesterday, the Digital Currency Group – parent company of Grayscale – announced that it could invest up to $ 250 million in the GBTC bitcoin trust.
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