Morgan Stanley Increases Holdings of Grayscale Bitcoin Trust GBTC What is it?

At the end of August, according to documents submitted by Morgan Stanley to the U.S. Securities and Exchange Commission (SEC), more than 30 of its funds purchased more than 6.5 million shares of Grayscale Bitcoin Trust (GBTC) in June, with each share trading at $37.82, with a total value of approximately $240 million. Morgan Stanley's public increase in holdings makes it the second largest known holder of GBTC after Cathie Wood's Ark Investment Management, which currently owns more than 9 million shares of GBTC.
In the crypto asset industry, many people have heard of Grayscale. Grayscale is a wholly owned subsidiary of Digital Currency Group (DCG), a Wall Street financial group focused on blockchain and digital currency investment. DCG has invested in more than 150 blockchain companies in more than 30 countries around the world, including industry giants such as Coindesk, Coinbase, and Blockstream. Grayscale is one of the largest cryptocurrency investment funds under DCG.
Grayscale has a large number of crypto asset trust products, including BTC Trust, BCH Trust, ETH Trust, ETC Trust, LTC Trust and dozens of others. Grayscale Bitcoin Trust is the largest crypto asset trust product under Grayscale and has been registered with the US SEC and has compliance qualifications, making it one of the few compliant channels for US institutional users to passively invest in Bitcoin.

Grayscale holdings on September 1, 2021 (data source: Grayscale official Twitter)

Investors need to meet certain asset requirements to purchase GBTC. According to the requirements of Grayscale Bitcoin Trust, only individuals with a net worth of more than $1 million or an income of more than $200,000 in two years, and institutional investors with assets of more than $5 million are eligible to purchase GBTC. At the same time, according to previous Grayscale reports, more than 80% of its customers are institutional investors.
It can also be seen that the main user group of GBTC is traditional investors. When facing emerging markets such as digital currencies, they are worried about the high learning cost, as well as the custody, loss and trading of coins. Compliant trust products can obviously meet their needs. And because trust products can enjoy certain tax benefits in the United States, many American investors will use trust products as an important means of asset allocation.
The investment threshold of GBTC is not only high, but also has many restrictions. For example, GBTC is issued regularly, and investors cannot redeem it, but can only resell it. Therefore, investors who want to take profits can only sell it in the secondary market, which also makes the number of bitcoins managed by Grayscale increasingly larger, becoming one of the whales with the largest bitcoin holdings. According to the data on Grayscale's official website on September 2, the total assets under management of Grayscale Bitcoin Trust have reached US$30.9 billion, accounting for approximately 2% of the current total market value of Bitcoin, with a return rate of 293.92% in the past 12 months and a return rate of 31,807.14% since its establishment.

GBTC Overview (Data Source: Grayscale Official Website)

At the same time, according to SEC regulations, GBTC investors are not allowed to resell GBTC during the 6-month closed period. This closed period mechanism means that the BTC price corresponding to the GBTC share may not strictly correspond to the price of the real BTC spot, and there may be a premium or discount, and it is this premium that gives many investors some arbitrage space. For example, when the market premium is much higher than the borrowing cost, investors can borrow a certain amount of BTC, subscribe for GBTC shares, and then sell GBTC shares in the secondary market after 6 months. If investors are worried about the risk of financial losses due to the downward trend of Bitcoin prices within 6 months, they can also hedge in the futures market.

GBTC premium over the past year (data source: Skew)

GBTC’s capital inflows over the past year (data source: Skew)

At the end of last year, the premium of GBTC reached its peak, reaching a positive premium of 40%. In February of this year, the situation took a sharp turn for the worse, and GBTC turned to a negative premium, even reaching a negative premium of 20%. When GBTC turned to a negative premium, the inflow of funds into the Grayscale Bitcoin Trust also gradually decreased.

Bitcoin holdings of some listed companies (data source: bybt)

The non-redeemable nature of GBTC means that its Bitcoin holdings will only increase, making Grayscale an indispensable bullish force in the Bitcoin market. Currently, many Wall Street institutional users have participated in digital currency investment by purchasing Grayscale Bitcoin Trust, and many listed companies have also announced their Bitcoin holdings, including Tesla, MicroStrategy, a US listed commercial software giant, and Square, one of the US mobile payment giants. It can be seen that the traditional financial industry has expectations for the performance of Bitcoin and cryptocurrency, and is willing to actively join this emerging market. The coverage and spread of cryptocurrency are becoming more and more widespread as its recognition in the traditional financial field increases.