Why the GBTC discount could lead to a Bitcoin sell-off
Grayscale Bitcoin Trust (GBTC) remains the largest bitcoin trust in the world with billions of dollars worth of BTC, but over the past year the trust has struggled to keep up with the market. The result of this has been a large premium that has continued to expand throughout the bear market. Currently, GBTC is trading at an all-time premium, which has sparked speculation about a potential BTC sale in the pipeline.
GBTC is approaching 50% premium
The month of November was full of adversity for the crypto space and this is reflected by the GBTC premium. It shows an almost steady increase in the discount or premium to NAV, which has persisted into the month of December.
On December 7th, the GBTC premium to NAV saw one of its biggest jumps as it went from 43.61% on December 6th to 47.27% on December 7th. This has brought the premium to new all-time highs and although the following days did not see as much of an increase, an almost 1% increase each day saw GBTC close last week at a premium to NAV of 48.62%.
Now, what this means is that the price of ‘one BTC’ is trading for 48.62% lower on GBTC than it is on the spot market. Normally this would present itself as an opportunity to buy cheap, but GBTC investors aren’t buying any actual bitcoin, and with the problems faced by Grayscale’s parent company, DCG, it’s become increasingly obvious to investors that the fund could be on the way . too much trouble.
Will this lead to bitcoin sales?
GBTC currently has more than 640,000 BTC worth around $11 billion at today’s prices. As such, the speculation about a potential collapse does not stem from concerns about Grayscale itself, but about its parent company DCG.
DCG is reportedly $2 billion in debt, most of which stems from Genesis Trading, which had limited withdrawals a few weeks ago, and Eldridge. Rumors circulating the interwebs are that DCG is actually splitting GBTC to secure its loan from Genesis, which makes up the vast majority of the loan.
GBTC share price at $8.01 | Source: Grayscale Bitcoin Trust (BTC) on TradingView.com
On a recent episode of ‘The Chopping Block,’ Haseeb Qureshi, managing partner at Dragonfly Capital, said the $1.1 billion promissory note to Genesis could be “callable. What this means is that if Genesis were to liquidate or go bankrupt, DCG would be required to to pay the total value of the loan. The problem is that DCG does not have the necessary amount to honor it if this happens. Then DCG can look to GBTC for a bailout if this happens.
Yet GBTC continues to persevere through adversity. Coinbase has previously publicly stated that it holds all of GBTC’s bitcoin in its escrow service, and if prices were to start recovering from here, the premium to NAV could begin to close.
