Premium of GBTC Has Fallen Substantially: What Does it Mean For Bitcoin?

Premium of GBTC Has Fallen Substantially

On October 18, cryptocurrency trader and technical analyst Eric Thies released a comparative chart of Bitcoin and Bitcoin Investment Trust (GBTC), a publicly tradable instrument that allows investors in the public stock market to invest in BTC.

According to Thies, the drop in the premium of GBTC is significant, as it demonstrates a decline in interest towards Bitcoin from retail investors or individual traders, and a large entity or group of investors are holding the price of BTC up above the key $6,000 support level.

    $BTC (blue) vs. $GBTC (yellow)

    Seriously, this is significant…nobody is talking about this. pic.twitter.com/cPVb3MNg1p

    — Eric Thies (@KingThies) October 17, 2018

“My take is that the two never deviate apart as such and there’s a ton of money about to be made. Only thing is I’m not versed enough in GBTC and the premiums, benefits, etc. It tells me two things are clear however: retail investor interest is extremely low and something or someone very powerful is holding actual BTC up.”
What Does it Mean For Bitcoin

Each share of GBTC, currently valued at $7.21, represents one thousandth of a Bitcoin. Holders of GBTC in the stock market can redeem BTC with their shares of GBTC, as the institution, in this case Grayscale Investments, a subsidiary of Barry Silbert-led Digital Currency Group, stores BTC on behalf of investors.

The premium on GBTC, which has existed since its launch, represents various benefits investors can obtain by investing in BTC through GBTC instead of directly purchasing cryptocurrencies through exchanges.

Two major benefits of GBTC are taxation and security; investors do not have to file additional tax reports from their returns on exchanges and can leave GBTC to maintain BTC holdings safely on behalf of the clients.

For years, the premium on GBTC remained above 20 to 30 percent. However, in the past several months, the premium on GBTC against BTC has fallen to around 10 percent. That means, to purchase BTC through GBTC, investors need to pay $7,210 per BTC.

The analysis of Thies on the decline of the share price of GBTC is accurate in that it demonstrates a decline in retail demand. But, it could also mean that it shows a decline in retail demand for that particular product.

It is entirely possible that with Bitcoin exchange-traded funds (ETFs) on the horizon filed by the Chicago Board Options Exchange (Cboe) and VanEck, two institutions that have decades of track record in strictly regulated US markets, investors are confident that alternatives to GBTC will US markets in the near future.

Ostensibly, the drop in the share price of GBTC could seem like the representation of the fall in interest towards crypto from investors in the traditional finance market. However, it also represents increasing anticipation of ETFs. Hence, depending on the perspective of investors, the implication of the GBTC premium decline could understandably vary.
Aren’t Bitcoin ETFs Faraway?

The final deadline for VanEck and Cboe BTC ETFs are in early 2019. The US Securities and Exchange Commission (SEC) has historically extended deadlines of most ETF filings until the final deadline, because the commission is not incentivized or encouraged to speed up the process of the approval.

It is highly unlikely for any Bitcoin ETF to be approved by the US SEC by the end of 2018, and...