Will the largest Bitcoin trust with 635,000 BTC fall? Investors face trust issues

• The fund’s latest reports have revealed the rumors about Grayscale’s GBTC trust fund.
• A Bloomberg report claims that the GBTC trust fund is the most important investment product in DCG regardless of investors’ concerns about the trust fund.

According to several reports, the leading crypto asset management firm, Grayscale investments, is experiencing problems with its most popular investment product, the Grayscale bitcoin trust (GBTC). Investors worry about various issues, especially the fund’s latest trading position. Recent chain data shows that the GBTC premium rate fell to 47.8 on Friday (the lowest ever).

Also read: Will grayscale be the next FTX? Genesis has $1.8 billion in debt to companies and customers

The drop indicates that the fund was trading at a huge discount, suggesting that investors have lost confidence in Grayscale’s financial products. However, a Bloomberg report revealed that this trend reflects investor sentiment towards the crypto market amid the ongoing crypto winter.

The report added that this trend is unlikely to change soon as the bearish bias surrounding the GBTC fund will only change once the crypto winter is over. Also, there is a lot of unpleasant news surrounding the digital currency group, the parent company of Grayscale.

Last month, one of Digital Currency Group’s (DCG) subsidiaries, Genesis Global Capital (a crypto lending firm), announced that it would pause withdrawals following exposure to the FTX collapse. Although Grayscale has repeatedly claimed that it is not affected by the liquidity problems affecting genesis, many investors remain unconvinced.

Market situation

Therefore, it is no surprise that Grayscale’s investment products have underperformed. At the time of writing, Grayscale’s premium is currently trading at minus 48.62 percent. An indication of its continued decline. As investor fears deepen following recent concerns, the trust will continue to trade at more massive discounts, indicating more intense selling pressure on GBTC than BTC itself.

The value of the leading digital asset has fallen by 64 percent compared to GBTC, whose value has fallen by 75 percent since January 2022. At today’s discount rate, the trust’s investors are selling their BTC at about 50 percent less than the current value of the leading digital asset.

Grayscale’s problems seem endless as a top hedge fund (Fir Tree Capital management) filed an injunction against Grayscale earlier this week. According to the court filing, Fir Tree Capital accuses Grayscale of mismanaging the GBTC trust. Therefore, it is seeking court approval to access Grayscale’s financial records and conduct a more detailed investigation. The hedge fund also claims that Grayscale has not been open to its 850,000 shareholders.

The most important product in DCG

Meanwhile, the Bloomberg report claims that the GBTC trust fund is the most important investment product among DCG’s investment products regardless of investors’ concerns about the trust fund. Grayscale and, by extension, DCG, receive an annual fee of 2 percent from GBTC, the largest among its financial products. At the time of writing, the fund’s assets under management are $10.8 billion.

The Bloomberg report predicts that Grayscale will receive at least $200 million annually from the GBTC trust. GBTC’s annual fee is far higher than most other investment products offered by Grayscale. For example, the ProShares Bitcoin Strategy ETF provides 0.95 percent annual fees.

In an interview with Bloomberg last month, CEO of Ark Invest (an asset management firm), Cathie Wood, explained the importance of Grayscale’s crypto trust products to the crypto ecosystem. Wood said that Grayscale would make every effort to maintain these crypto trusts if the firm places great value in them.

After GBTC traded at a massive discount, Woods’ asset management firm bought $1.5 million worth of GBTC shares on December 5. Ark Invest bought its GBTC shares when the GBTC discount rate was 45 percent. Wood’s asset management firm also bought $2.8 million of GBTC shares last week. The asset manager’s move shows their confidence in the GBTC trust.