17:34Bitcoin Market Eyes Grayscale Premium as Unlock Looms
A large tranche of Grayscale Bitcoin Trust Shares (GBTC) will unlock on Feb. 5, according to recent inflows.
Grayscale at a Critical Juncture
This week, GBTC shares turned negative for the first time.
In 2020, GBTC shares traded at a premium of roughly 15-20% to Bitcoin’s Net Asset Value price.
Institutional investors have been known to use the premium to their advantage by executing low-risk arbitrage trades since Grayscale’s launch—the average premium on the product since launch is 38%.
Hence, when GBTC shares unlock, investors sell their shares at a premium on brokerages like Fidelity, Charles Schwab, and TD Ameritrade to reinvest in the trade again, causing an uptrend in price.
The trend first discovered by Jarvis Labs’ Ben Lilly followed perfectly during the last unlocking.
The premium reached a peak of 40% on Dec. 21. Lily predicted that the premiums would drop when the unlocking had run its course on the price. Following Lily’s analysis, the drop in GBTC premiums may have been due to “no unlockings” of Grayscale’s shares. Still, a discount on GBTC raised apprehensions of reduced institutional demand.
The second-factor affecting Grayscale premiums is the availability of similar products.
Traders and analysts alike have been aware that as competition increases, the premiums will subside. Notable Grayscale competitors include Bitwise’s Crypto Index, the Bitcoin ETF filing by VanEck, and regulated products found in Canada and Europe.
Crucial Unlocking Begins
If the premiums continue to slide, institutions may begin to seek other investment opportunities in place of GBTC.
Three Arrows Capital dominated the last unlocking event. It was identified as the leading investor in June 2020, scooping 21 million GBTC shares. After the share unlocks six months later, the investment firm acquired 38.8 million GBTC shares.
The co-founders of Three Arrows Capital, Su Zhu and Kyle Davies, have been bullish on the asset lately.
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