Grayscale Bitcoin Trust's negative premium hits 26.5%, a new low. Will Bitcoin ETF become a new battlefield?

According to YCharts data, the negative premium of Grayscale Bitcoin Trust (GBTC) reached 26.53% on Wednesday, Eastern Time, setting a historical record. GBTC investors are facing more losses.

GBTC has been the investment vehicle of choice for many institutional investors to gain cryptocurrency exposure without having to purchase Bitcoin directly.

However, it also has several disadvantages, including a 2% annual management fee and a six-month lock-up period.

GBTC’s positive premium turned negative starting in February 2021 as demand for the product shrank. The negative premium to net asset value (NAV) not only means that existing holders of GBTC are losing money, but it could also be seen as a bearish indicator of broader institutional sentiment towards Bitcoin.

In other words, the current discount could mean waning interest in the asset as GBTC supply exceeds demand.

Data from the Bitpush terminal showed that when GBTC hit a record low, Bitcoin hovered around $42,000, down 9% from last month and nearly 39% from its historical high in November.

Some recently launched bitcoin futures exchange-traded funds (ETFs), such as the ProShares Bitcoin Strategy ETF (BITO), have also faced tough times.

However, the asset offers investors exposure to the leading cryptocurrency without a lock-up period and with lower fees.

Despite the poor performance of Grayscale’s Bitcoin tool, the company has a plan: convert GBTC into a spot Bitcoin ETF.

However, the U.S. Securities and Exchange Commission (SEC) delayed the company’s Bitcoin ETF application last month.

Given SEC Chairman Gary Gensler’s tough stance on investment products backed by physical Bitcoin, it seems unlikely that Grayscale will execute the switch.

Another option for Grayscale to close the gap between Bitcoin’s underlying value and GBTC’s market price could be to lower fees and offer a redemption program, according to Bloomberg Intelligence ETF analyst James Seyffart.

As an extreme measure, he also suggested closing the fund permanently and returning the money to investors.

However, he said that this “would be very bad for Bitcoin,” adding that he did not see that happening in the near term as Grayscale would do everything in its power to get a Bitcoin ETF approved.

The ongoing discount could also be because investors are skeptical of Grayscale’s plans to convert the fund into a spot ETF. Some analysts don’t expect a conversion to happen anytime soon.

The SEC has yet to approve a spot Bitcoin ETF.

“Bitcoin still cannot leave GBTC, which means it should continue to trade at a deep discount to reflect this illiquidity,” said Dave Nadig, head of research and chief investment officer at ETFTrends.com.

The recent cryptocurrency sell-off may also be contributing to GBTC’s wider discount. Bitcoin has fallen about 37% from its all-time high of nearly $69,000 in November last year, and at the time of writing, the price of Bitcoin is stable at around $42,000.