Grayscale Bitcoin Trust premium rate approaches historical low. Is the Bitcoin market reaching a turning point?

Just after Bitcoin broke through the $40,000 mark to hit a record high this month, the market's continued rise seems to be weakening. Affected by Yellen's speech, the Bitcoin market has been fluctuating and falling for several days. According to KingData data on January 26, the premium rate of the Grayscale Bitcoin Trust Fund (GBTC) has also fallen to 4.06%, approaching the historical low again, and the arbitrage space has shrunk severely.

The declining premium of Grayscale Bitcoin Trust has sounded the alarm for investors and traders. Some analysts believe that the decline in premium may lead to a discount of GBTC, which may be a turning point for Bitcoin.

There is a view that Bitcoin's price rise is focused on institutional buying and the digital gold narrative. The key here is that institutional buying is an investment in GBTC, and institutions are buying GBTC for the premium. Once the premium drops, demand is expected to drop, and the same is true.

Grayscale Bitcoin Trust is the main channel for institutional investors to enter the BTC market. The premium is a key factor that attracts institutional investors to deposit funds. Since GBTC has a long-term positive premium, it has formed an arbitrage space between the primary and secondary markets, attracting many institutions to engage in arbitrage activities. When we see the news that Grayscale continues to increase its holdings of Bitcoin, we can basically conclude that arbitrage institutions have optimistic expectations for the GBTC premium.

It can be said that it is not Grayscale that is buying coins, but investors (mainly institutional investors), and investors are not just buying but not selling. Investors can wait until the shares are unlocked and sell them in the secondary market of US stocks to cash out, and can arbitrage from the positive premium. Although the arbitrage opportunities brought by the premium increase the potential market selling pressure, the listing and circulation market of G BTC shares is isolated because Grayscale funds cannot be redeemed. Investors cannot sell trust shares in the crypto market and can only sell them in the secondary market of US stocks, which is equivalent to transferring the market selling pressure to the US stock market.

Although selling pressure will not be directly reflected in the currency market, the decline in premiums indicates that institutional purchases of GBTC may be suspended, or even worse. OKEx Research researchers reminded that this round of Bitcoin bull market is the product of high inflation expectations. For institutional investors, what matters is profit. After the vaccine is launched and the epidemic is gradually alleviated, as the economy gradually recovers, monetary policy will gradually shift from loose to moderately tight. At that time, institutional investors may sell Bitcoin.

Fortunately, the price has not shown a completely free fall so far. Analyst K pointed out that the weekly support is $29,450. As long as the weekly closing line is not broken, it is possible to hold on patiently. Once the large-scale trend is formed, it is difficult to change. The short-term support is $31,000.

The overall trend is still the process of the 10-year long-term trend channel breaking through the middle line and oscillating to build a stage bottom. It is very similar to the trend of rising to this trend line position in 2017, and it is still an upward relay pattern.

At present, it seems that the trend is still range-bound and it will become strong again only after crossing below.

Pantera Capital, a cryptocurrency fund manager with more than $1 billion in assets under management, is working on launching a new fund targeting heavyweight institutional investors. According to CEO Dan Morehead, the new fund could be launched “in the coming months.”