The negative premium has returned to the same level as last year. Is GBTC back as the king?

Grayscale's GBTC premium is continuing to narrow. Recently, its negative premium rate officially entered 30%, and has narrowed to 29.79%, the lowest value in a year. Its premium rate has recovered to the level of July 2022.

More directly, how much return can GBTC bring to new investors this year?

In February this year, for example, GBTC once reached a low of $10.3, with a negative premium of about 47%. Taking today's price as an example, the current price of GBTC is $18.6. In less than 5 months, GBTC has created 80% of its dollar-denominated returns. If priced in currency, GBTC has also created a high return of 32%.

While we are still in a bear market, assets that can outperform BTC are at a premium.

Transactions surge, prices soar, GBTC rebounds across the board

Previously, GBTC once faced a sell-off crisis. Since October 2022, the negative premium level has continued to rise, rapidly increasing from over 30% to over 40%. In December 2022 and February 2023, GBTC faced a high discount of "half price" for a long period of time, and the negative premium rate continued to hover around 50%.

From the graph, it is not difficult to see that it has continued to rise for nearly half a month since mid-June.

As the negative premium narrowed, GBTC trading activity gradually became active. According to Nasdaq data, GBTC trading volume has continued to rise since mid-June, and on June 20, it hit the highest point of trading volume this year, with daily trading volume reaching US$10.2 million.

Nasdaq data shows that GBTC's trading volume reached US$69.2 million in June, while in May, the figure was only US$38.7 million, a month-on-month increase of 79%.

Along with the recovery of GBTC is the increase in Grayscale's revenue, which may revive this "flagship" institution in the cryptocurrency circle that has faced many crises and rumors in the past year.

Grayscale's high fees have long been criticized by investors, with a management fee of 2% for GBTC and 2.5% for ETHE. Based on its holdings, Grayscale is expected to have earned approximately $44.13 million from its flagship products GBTC and ETHE this month. This is also the best month for revenue performance since the deep bear market in May 2022.

All signs indicate that the recovery of GBTC data reflects the market's growing positive sentiment towards it.

From being hated by everyone to fully recovering, what happened to GBTC?

In sharp contrast to the present situation, GBTC has experienced various crises and negative rumors in the past year.

At the end of 2022, a rumor about GBTC instantly set off the market. Although Grayscale has long earned considerable income by virtue of its dominant market position, the crisis of Grayscale's parent company has dragged Grayscale down. Market rumors say that the crypto trading and lending institution Genesis may have solvency problems. In order to fill the hole, Genesis's parent company DCG may choose to dissolve GBTC and ETHE issued by another company under its umbrella, Grayscale.

In January this year, one crisis followed another. Cameron Winklevoss, co-founder of Gemini, sent an open letter to the founder of Digital Currency Group (DCG) on behalf of its platform users, using harsh words and demanding that he repay the $900 million owed. Cameron also revealed in the open letter that DCG owed Genesis a total of about $1.68 billion, and the worsening crisis of DCG has attracted great attention from the crypto community.

As the Genesis crisis intensified, Gemini continued to sell GBTC collateral in the over-the-counter market. This also led to the continued expansion of GBTC's negative premium. The scale of its sell-off once accounted for 5% of the total circulation of GBTC.

Previously, DCG had leveraged to speculate on GBTC, which was one of the main reasons for its financial crisis. According to Odaily Planet Daily, since the first quarter of 2021, DCG has spent a total of US$1.305 billion to purchase 54,823,667 shares of GBTC, with an average price of US$23.8 per share. As the market turned bearish, DCG continued to increase its positions in the bear market and once "leveraged" to speculate on cryptocurrencies. With the continuous decline of GBTC and the gradual deterioration of the market environment, its financial crisis gradually emerged.

As pessimistic as the market was once about GBTC, as bullish it is now.

Although the market has shown an extremely positive future outlook for GBTC, there is still a huge gap from GBTC's historical highs.

In June and September 2017, GBTC once achieved a positive premium of more than 100%. According to Coinglass data, its highest premium rate ever reached 132%.

During the bull market in 2021, the GBTC premium rate turned from positive to negative. However, its negative premium was not serious and remained at around 10% or 20% for a long time.

The current premium level of GBTC is much lower than it once was. As market sentiment gradually turns to a "bull market returns quickly", is GBTC expected to return to its former throne, or even return to a positive premium?

June 16th marked the beginning of this round of GBTC’s rise.

On the same day, BlackRock, one of the world's largest asset management groups, submitted a spot Bitcoin ETF application to the US SEC through its subsidiary iShares. This also allowed the crypto market to once again have the narrative model of "regular troops" entering the market.

According to the application documents, its assets are mainly composed of Bitcoin held on behalf of the trust custodian, and the "custodian" is implemented through the cryptocurrency trading platform Coinbase. As the news of the formal private ETF spread, GBTC once again returned to the center of attention of some investors.

Throughout the long history of GBTC, the company has tried several times to convert GBTC into an ETF in order to provide GBTC investors with a complete exit channel. It first submitted this application in October 2021. But unfortunately, this idea has never been realized. With BlackRock entering the BTC ETF market, the market has speculated that the possibility of such products being approved is rapidly increasing.

If the BTC spot ETF is finally launched, the cryptocurrency will usher in a historic moment. Once the spot ETF is launched, GBTC is expected to be smoothly converted into an ETF, and its negative premium will no longer exist. This not only contains huge arbitrage space, but also is expected to return GBTC to the throne.

The competition for BTC ETF is fierce. Can Grayscale regain the throne?

The overall recovery of data and the strong expectations for ETFs all make GBTC look like it is getting better. However, in the long run, whether its market position is expected to return to its heyday still faces many difficulties, and investors do not need to have too high expectations for it.

Grayscale has been the largest single buyer in the crypto market for a long time.

At the beginning of 2021, Grayscale's BTC holdings reached a historical peak, exceeding 650,000 BTC.

Looking at its image, it is even more shocking. Before reaching the top, the number of coins it holds is like a steep mountain, constantly climbing. Due to its unique mechanism, Grayscale can only buy but not sell, exerting an immeasurable influence on the spot market of Bitcoin.

The "consistent" and huge amount of buying also made it once nicknamed the "bull market engine" and the Bitcoin Pixiu.

In the new round of bull market, Grayscale's market position may be impacted.

Prior to this, Grayscale GBTC was once considered the best choice for institutional investors due to many regulatory reasons or compliance requirements. However, if the spot ETF is launched, GBTC will face many competitors.

Recently, Wall Street giants have concentrated on applying for ETFs and entering the crypto market. In addition to BlackRock, there are also many other institutions including Fidelity, Invesco, and WisdomTree.

Once the ETF is approved, whether or not GBTC can be successfully converted, the impact will be far-reaching.

If GBTC cannot be converted, the approval of other BTC ETFs will attract GBTC investors to other ETFs. If GBTC is successfully converted, other competitors will also stimulate Grayscale to be forced to lower its high management fees. Most importantly, if GBTC is converted into an ETF, the fund will face strong outflow pressure and its huge asset management scale may also drop sharply.

The sentiment of "bull market returns quickly" has gradually emerged. Regardless of whether Grayscale's market position can return to the past, its huge size is still worthy of the market's attention. Even now, Grayscale still holds 625,900 BTC, worth about $19 billion, accounting for 3.2% of the circulating supply of Bitcoin.

As the market continues to improve, Grayscale's role as a "barometer" in the market is far less than before. There are more and more products on the market that can replace Grayscale, and Grayscale is no longer the only choice in the market.