Why is Wall Street becoming less interested in Grayscale’s Bitcoin Trust?
The price of Bitcoin has soared to the $4,000 range since the end of last year, but despite the surging price, the number of investment funds that have begun to invest in the cryptocurrency has remained steady at a mere 2 or 3 percent. Wall Street bankers are likely wondering why this is the case, as the majority of funds still invest in traditional assets like stocks and bonds, and there is no logical reason as to why these funds are staying away from Bitcoin and other cryptocurrencies.
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Grayscale, the oldest and most well-known digital asset manager in the space, announced last week that it’s launching a Bitcoin exchange-traded fund (ETF). It’s the first attempt by a major financial institution to provide a way for individual investors to buy, sell, and hold Bitcoin.
In the past few years, Bitcoin has been a hot topic in the financial world. Many people in the finance world see Bitcoin as an alternative to traditional currency, while others believe it to be a “bubble waiting to burst”. The truth is that Bitcoin has made an impressive rise in the past few years and is poised to become a big player in the future.. Read more about how much bitcoin does grayscale have and let us know what you think.
There is a reason why the Grayscale Bitcoin Trust (GBTC) has become the benchmark for measuring institutional interest in bitcoin (BTC).
Grayscale is no longer the only option for investors
This digital currency investment product was one of the few that offered hedge funds, endowments, pension funds and family offices a way to access bitcoin without having to own the digital asset itself. As a result, increasing inflows into GBTC – such as last year, when Wall Street investors poured about $18.2 billion into the fund – have served as a gauge of growing institutional interest in the cryptocurrency sector. Conversely, lower inflows reflect institutional withdrawals or profit-taking, as has been the case since the first quarter of 2021. On Thursday, analyst service Skew reported that GBTC will not attract any new investment as of February 2021. Capital inflows stopped when GBTC began trading at a negative premium to net asset value (NAV). The NAV represents the underlying market value of the investments. No more money circulates in the Grayscale Bitcoin Trust because the premium becomes negative. Source: Skewed At the beginning of the year, the GBTC premium was over 30%. However, the latest chart shows a skew of -11.40%. The GBTC’s premium to the NAV at the session low was 40.20%, the worst ever. Meanwhile, the GBTC premium enjoyed a small rebound in early April after Grayscale announced plans to convert its trust structure into an exchange-traded fund (ETF). The New York-based company decided to do so because of increasing competition from ETFs that have recently launched in Canada, mainly because they offer better expense ratios than Grayscale. For example, Purpose, the first-ever physical bitcoin ETF, appeared with an expense ratio of 1%. Evolve and CI Galaxy, the other Canadian bitcoin ETFs, offered 0.75% and 0.40% respectively. Grayscale’s expense ratio was 2%. Trading rivalries with Canadian bitcoin ETFs may have also slowed capital inflows into GBTC. Purpose, for example, raised $1 billion in capital a month after its launch in February, suggesting that demand for bitcoin investment products has remained strong despite the sharp drop in GBTC flows.
Musk irritates Wall Street bitcoin investors
During this period, the price of bitcoin also rose thanks to the Elon Musk factor. After Tesla announced that it had $1.5 billion worth of BTC on its balance sheet, the purchase price per bitcoin rose from $38,057 on February 8 to $64,899 on February 14. April. Speculators believe that more and more companies will replace some of their cash with the flagship cryptocurrency. However, the GBTC premium remained negative during the bitcoin price increase in February and April. The low was at minus 40.20% when BTC/USD started to lose its gains due to profit taking, a ban on crypto currency in China and rumors of Tesla dumping bitcoins. Corrective sentiment on bitcoin has increased after Musk criticized the cryptocurrency for its carbon footprint. Source: BTCUSD on TradingView Daniel Martins, founder of independent research firm DM Martins Research, pointed to the drop as a sign of Wall Street’s disinterest in bitcoin-related investments, especially after the cryptocurrency apparently fell victim to Musk’s anti-bitcoin tweets in mid-May, losing more than half its value at one point. Martins also noted that Grayscale’s annual return was 500% higher than Nasdaq’s, but that the correction was worse than the Great Recession of 2008 – 82% versus Nasdaq’s 17%. This made Grayscale’s bitcoin investment product a very high-yielding bet with the worst risk-adjusted return. The analyst added: The volatility of the GBTC was almost nine times that of the Nasdaq: 145% versus 17%.
Martin’s statements underscored the possibility that the GBTC premium could fall even further, as investors look for more stable alternatives during the current bitcoin price correction. In addition, competition from other digital currency investment alternatives, including cryptocurrency custody services that offer institutional investors ownership of genuine crypto assets for a lower fee, poses another risk of limiting capital inflows. ETF.com analyst Sumit Roy wrote that Grayscale’s possible move to an ETF would end its days with a 2% commission, as it would have to compete with an army of other ETFs led by Bitwise, Vanguard, Fidelity, Cboe and others. He added: Nevertheless, no matter what happens, GBTC is poised to become a force and will likely continue to be regardless of how the cryptocurrency space evolves. But whether US markets will have access to bitcoin ETFs in 2021 remains a mystery. The Financial Times reported earlier this week that most ETF filings are gathering dust now that US Securities and Exchange Commission Chairman Gary Gensler has raised new concerns about investor protection in cryptocurrency markets. To be honest, I expect this [delay] to happen for all of our quotes, said Laura Morrison, Cboe’s global head of global quotes.Grayscale Investments, a company which owns and operates a portfolio of Bitcoin and Ethereum assets, today announced a new Bitcoin trust for qualified investors.. Read more about gbtc and let us know what you think.
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