Since December 2021, several weekly trading sessions have seen investors pour between $10 and $120 million into Grayscale's flagship fund. Meanwhile, the largest inflows, amounting to nearly $140 million, occurred in the week ending February 25.
Institutional investments in Grayscale as of September 2021 | Source: Glassnode
Institutional Investors Still Holding GBTC
The GBTC trust has attracted investments as global markets have faced successive shocks over the past few months, including a sharp sell-off in tech stocks, followed by Russia's invasion of Ukraine. causing many fund managers to suffer heavy losses.
For example, ARK Next Generation ETF (ARKW) of Cathie Wood, which holds $478 million worth of GBTC, has fallen by nearly 45% year-on-year, largely due to its exposure in the hardest-hit sectors during any period. recent market stability, including technology (43,14%) and communications (27,99%).
ARKW Weekly Price Chart | Source: TradingView
But in November 2021, ARKW added more than 450,000 GBTC shares to its portfolio, when their discount amounted to almost 17.5%.
Similarly, the Morgan Stanley Insight Fund (CPODX) held more than 1.5 million GBTC as of September 30, 2021, according to its securities filing with the US Securities and Exchange Commission (SEC). Its full-year performance as of March 6, 2022, was around minus 43%.
Both ARKW and CPODX underperform as GBTC drops 43% over the past 12 months. However, they did not report the sale of shares of GBTC.
Institutional investments in Grayscale | Source: Swissblock Technologies, Glassnode
Bitcoin ETF being hyped?
Many factors lead to GBTC's underperformance, including increasing competition from funds ETF in Canada. Unlike GBTC, ETF allows investors to buy back shares, a process through which a fund can destroy shares based on supply-demand dynamics.
Digital Currency Group, the parent company of Grayscale, tried to reduce the discount by buying back GBTC shares. But its efforts were thwarted by the launch of ProShares Bitcoin Strategy ETF (BITO), the company holds the futures contracts. This has caused the GBTC price to deviate further from the spot price of Bitcoin.
Grayscale discount/spread Bitcoin Trust with net worth | Source: YChar
Currently, Grayscale is venturing through effort convert GBTC from a trust fund to an ETF tied to the price of Bitcoin. If SEC Approving Grayscale's application will cause GBTC to reset from its current discount levels to zero.
However, the SEC did not approve the application Bitcoin ETF single spot, citing the risk associated with price manipulation. Meanwhile, regulators in Canada and Europe have welcomed Bitcoin-backed investment products.
The investment management firm, Investor Trip, asserts that the SEC will eventually approve a spot ETF “due to pressure from third-party advocates.”
In the analysis published on February 14, the company said:
“If approved, Grayscale will convert the trust into a spot ETF and the discount window will be gone.”
In contrast, analysts at Conservative Income Portfolio call GBTC an investment “predestined to be zero,” noting that discounting Bitcoin’s net asset value “doesn’t really fit.”
“Institutions flocked to the market expecting a near-term rally, and this is not a measure of their sentiment for the market.”