GBTC Premium Rises 47% Above Bitcoin Price Signalling Institutional Demand

By April 12, 2019 Bitcoin Business
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The Grayscale Bitcoin Trust is marking notable gains since the beginning of 2019, despite the rising premium in the product compared to Bitcoin’s net asset value (NAV). According to some, this is a sign of institutional net buying and that new money is coming into the market.

GBTC Soars 47% Since Pre-5K Breakout

GBTC, a product offered by Grayscale Investments, the world’s largest digital asset fund, is having a great year so far, gaining more than 56 percent in the past three months.

More notably, the product is up 47 percent since Bitcoin’s latest rally on April 2nd, while Bitcoin’s spot price $5136.20 +0.05% has increased by only 28 percent.

According to economist and popular trader Alex Krüger‏, this is a sign of new money coming into the market. He explained:

GBTC 10% today, outperforming BTC. – GBTC +47% since [April 2nd] breakout – BTC +28% since [April 2nd] breakout Another symptom of new money coming into crypto.

Earlier this week, Bitcoinist reported that institutional Bitcoin trading volume has grown for four consecutive months. However, GBTC has lost some market share dropping to under 24 percent compared to over 50 percent when it comes to institutional products.

However, the latest rally of Bitcoin’s price did cause the assets under management (AUM) of Grayscale Investments to surge past $1 billion. Shortly after that, the asset manager increased the overall share of Bitcoin as part of its composition by 1.5 percent.

Why Is The GBTC Premium Rising?

The price of one GBTC share is set at 0.00098409 BTC. At the time of this writing, this equals $5. Given the current price of Bitcoin $5136.20 +0.05%, this means that GBTC buyers are happily paying a premium worth around 37 percent. Moreover, there’s also an additional 2 percent annual fee on top of the premium.

Back in February, when the premium was almost identical, the head analyst of Fundstrat Global Advisors, Tom Lee, commented on the matter, explaining that the rise in premium is a sign of institutional net buying.

CRYPTO: $GBTC premium to NAV creeping up to 36% on heels of $BTC surge to ~$4,000

Rise in premium is a sign of institutional net buying (easier to buy this ETN from ⁦@GrayscaleInvest⁩ than buy via a crypto exchange)…

…another sign 2019 way better than 2018 for crypto pic.twitter.com/hdFh8y3sY9

— Thomas Lee (@fundstrat) February 19, 2019

Why Pay a Premium on Bitcoin?

Shares of GBTC are touted to be the first “publicly quoted securities solely invested in and deriving value from the price of bitcoin.”

GBTC allows institutional investors to receive exposure to the price movement of bitcoin by using a traditional investment vehicle. In other words, investors don’t have to worry about buying, storing, and managing their private keys.

Moreover, GBTC shares are also eligible to be held in certain IRA, as well as other brokerage accounts. Hence why investors are paying that high premium compared to Bitcoin’s spot price.

It appears that the latest price surge may have shifted the market sentiment. Bitcoinist reported that Chinese traders are happily paying a markup for Tether stablecoins, as it provides the easier way to buy Bitcoin compared to the Chinese Yuan (CNY).

What do you think of the performance of GBTC and its high premium? Don’t hesitate to let us know in the comments below!

Images courtesy of Shutterstock, TradingView

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