Some of you may or may not know about an OTC "stock" called GBTC. For those who don't, in a nutshell, it is a "trust" set up and managed by Grayscale whereby accredited investors can buy bitcoin exposure without having to actually do any of the custodying of keys or coins or any of that. They send money to Grayscale, Grayscale buys BTC, and then one year later, they issue "shares" of GTBC that the investors can then sell on the open market. Like I said, it's a way for people to get exposure to Bitcoin (and other cryptos) without ever having to actually buy a crypto. In todays day and age, you can see why that might be attractive to people. Get the benefit without having to take the security risks.
Anyway, for most of the last year, GBTC has traded at a premium to the price of bitcoin. In fact, back when bitcoin first started testing 2017 highs, it was as much as 40%. In the last few weeks, that premium has gone negative. Shares of GBTC are now trading at a discount to the bitcoin price. I own a little, so I wanted to figure out why. While I didn't open a Pandora's box, I did get some very interesting information which basically blew away my concern for the premium.
According to Grayscales Q4 2020 "Digital Asset Investment Report" found here, DISCLAIMER: Grayscale issued this report but doesn't deem it as "filed". In other words, they reserve the right to change it) anyway, according to that report, some very interesting things happened over the last 12 months.
For one thing, Grayscale increased its assets under management (AUM) by 10x last year: $2.0B to $20.2B. Hello! That's a pretty good year. lol You know what they say about making your first billion.....I guess the billions after that really are "easier".
Also, in Q4 alone, Grayscale experienced inflows of approximately $3.3B for a yearly total of $5.7B. This number is ALMOST 5X the cumulative inflow of $1.2B they brought in from 2013-2019, and the Q4 number is almost triple by itself. (see my comment to the previous paragraph)
If these numbers aren't amazing enough, what I really found interesting was the fact that those Q4 inflows accounted for approximately 194% of ALL BITCOIN MINED during that time. In other words, Grayscale alone, not the exchanges, not the rest of the world, just Grayscale, took in enough money to buy almost double the "new" bitcoin coming into existence.
There were also a couple other nuggets to relate. One of them being that institutions accounted for 93% of inflows in Q4. Not only is that a big number, $3B, they also increased their average commitment from $2.9M per institution to $6.8M in Q4. In other words, not only are a lot more getting in, but they're getting in with increasing size.
Those were some of the "where we're at and what we did" numbers. But Grayscale also provided some "forward-looking" statements using these numbers as a basis.
First, they think that it has become a "Bitcoin Arms Race". Where it used to be a career risk to invest in Bitcoin, now it's becoming a career risk to "be a laggard". More telling is this line: "In 2020 we saw institutions adding Bitcoin to their balance sheets--in 2021 we may see nation states follow suit." Yup, no money there, right? I mean, if you are in charge of the printer, you might be able to scrounge up a little cash it invest....
Next they talk about RIA's. Again, I quote, "Asset managers advise on approximately $80 trillion in assets and most have not yet recommended digital assets." Bitcoin itself accounted for 87% of all inflows into Grayscale in Q4 of last year. You do the math.
Another tidbit, credit cards accounted for over $4 trillion in annual spending and debit cards $3 trillion. With the advent of credit cards paying back bitcoin as rewards, there could be a huge demand generated as major credit card companies need to keep up with the competition.
Next is a quick paragraph on defi. They expect "major financial firms to consider integrating with decentralized protocols." Traditional banking can no longer compete with the yields being delivered in the cryptosphere. It really is only a matter of time.
They finish with another suggestion that nation states are looking at this space. Citing a Jan 4th, 2021 article from the OCC they think that "US banks may look to incorporate digital currencies into their settlement infrastructure."
All of this is obviously extremely bullish for bitcoin and the rest of the cryptocurrency markets. Institutions are buying at record levels, supply continues to be eaten up by new investors, new "sinks" continue to be invented to take even more bitcoin off the markets, and now even nation-states are starting to look at getting involved. All this and we haven't even talked about the fact that pension funds are starting to get involved as seen in New Zealand and Israel among others.
I'll finish with their conclusion as it pretty much sums it up.
To quote Thomas Jefferson, "Paper money is liable to be abused, has been, is, and forever will be abused in every country in which it is permitted." 2020 was the year institutional investors recognized that Bitcoin is a viable option for offsetting the abundance of paper money and the cumbersome nature of gold. In a world with over $17 trillion of negative yielding debt, we believe Bitcoin will continue to become a cornerstone of investors' portfolios in 2021.
As always, I am NOT a financial advisors and this is NOT financial advice. The information presented here is for educational purposes only. Cryptocurrencies can and do go up and down and you could lose all your money. Do your own research!
Thank you for reading. If you like the content, please consider a comment and an upvote. I am more than happy to reciprocate.
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with this kind of company with a good amount of money going in and buying good amount of bitcoin I am sure those long bear time will not be as long as its used to be in after 2017 bullrun. But no one can tell the future.
at the moment, its better to stack up those sats or jump in and hold $hive or leo for a longer term as the development continued by the team.
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Seems likely but you never know in crypto, that's for sure. I agree though, stack sats, Leo, Cub, and Hive and the future should be bright. Thanks for the reply.
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Companies like BGTC help unlock that exposure to BTC for the money that is locked up in traditional accounts like ROTH/IRA/401k that is otherwise unavailable to invest in crypto. I know this has personal appeal to me as my traditional accounts have the size and cash to invest, while I am usually very cash/liquid fiat poor for new investments.
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Yes, it really is the only way to get bitcoin exposure in those tax saving accounts. Unless you buy companies that have lots of exposure like MicroStrategies, etc. I'm just hoping the premium gets back to close to even at least. Seems like it might be an opportunity to buy it at a discount right now. Who knows whether it will gap back up a bunch when the markets open on Monday though...
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So this is pretty much for some clarification for GBTC and thanks for the info.
You have two ways to enter GBTC: 1) Invest into Grayscale and get shares later or 2) buy them off the open market. If you buy them off the open market, is there a holding period (follow up from discussion on @leomarkettalk)?
Also is there no way to convert shares of GBTC back into BTC/Fiat without going to the open market? This doesn't bode very well to me because there is no reason for Grayscale to maintain premiums at near equal or positive.
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There is no holding period if you buy them on the open market. They're just regular shares. As for the converting back to BTC, I don't believe they can do that. I'm not sure. I haven't read the prospectus or anything. My understanding is that "investors" benefit from getting exposure without having to take any of the usual risks from holding crypto. Once they're in for a year, their investment converts to GBTC and then they can buy or sell that like a normal stock. But you're right, you would think they'd have to have an option to "keep" the actual bitcoin. Otherwise, why even go through Grayscale at all? Just buy it on the open market. For a discount, at this point.
Grayscale does have an incentive not to let the price drop however. If it does, again, why would anyone want to send them money when they could buy the shares, with no lock-up period, for a substantial discount to what they have to pay to Grayscale. Hmmm.... I'll have to see if I can find out more.
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They can't convert them back but there is speculation that Grayscale will have to make this move to remain competitive in the marketplace. There is also talks that they will have to reduce their 2% fees.
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An interesting outlook on the Bitcoin future in the near to medium term.
I think we are going to see some really big players enter the market. Grayscale has a firm grasp upon what is taking place within the market.
As for the discount, I think that reverses. People say it dropped due to competition but you look at the Canadian ETF, they pulled in a couple hundred million. That does not compare to the AUM that Grayscale has ($35 billion in BTC alone).
At some point people are going to realize they can buy GBTC for a 10% discount versus buying the token itself.
This should help close the gap at some point.
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I agree. It's should definitely at least tighten up to close to par with bitcoin. One of the reasons I think the discount is so big right now is because it was going into the weekend. I would expect a gap up to open on Monday.
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Well the discount has been rather large for a while. I didnt look at it as of Friday close but it was over 10% last time I checked.
Not sure what will cause it to lessen but there should be a major push up in the price as the discount turns to premium.
It is a rather tricky situation to understand completely since it is a trust, not an ETF.
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