Discount on Grayscale's GBTC Plunges to New Record Low as Competition From Emerging Rivals Intensifies

The premium on Grayscale Investment’s GBTC, which turned negative for the first time on February 23, is continuing its downward slide. As the latest Glassnode data shows, the GBTC was trading at a record low discount of -11.92% on March 4, 2021. According to the same data, this new low is a significant reversal from the December 21 premium of nearly 40%.

The Competition

This growth in the discount on GBTC comes as Grayscale Investments gradually shifts focus to altcoins. As reported by news.Bitcoin.com, Grayscale added 174,000 litecoins or almost 80% of the newly minted LTC in February of 2021. Similarly, the investment company also added 243,000 ETH to its ethereum holdings during the same period.

However, it is the discount on the GBTC that has sparked debate about what it might mean for holders of the investment product. Some have pointed to the launch of Purpose Bitcoin ETF as the primary reason for widening discount on the GBTC. After its launch on February 18, the ETF had amassed 11,141.2363 bitcoins as of March 2. Meanwhile, also sharing the same sentiment are analysts at the financial services giant JP Morgan. In addition to naming the increasing competition, the analysts also believe “profit booking” to be the other reason why the premium on GBTC has disappeared.

In the meantime, as Josh Frank, the founder and CEO at Thetie.io explains to news.Bitcoin.com, this scenario will not hold forever.

“This discount is not going to last forever because investors will take advantage of the discount on bitcoin they can hold in their retirement accounts,” said the founder.

The Premium Has Always Existed

Meanwhile, according to Frank, who previously explained in a Twitter thread why the premium on GBTC existed, institutions were getting “into the GBTC to arb the difference between the borrowing rate and the premium.” And as the CEO notes, this “trade worked for a really long time as retail consistently paid a premium on GBTC so they could get exposure in their retirement accounts.”

However, since the GBTC does not allow investors to redeem shares for underlying bitcoin and “as more investors came into arbitrage the premium, the amount of bitcoin held in GBTC skyrocketed thus exceeding the demand for GBTC by retail.”

Meanwhile, the CEO suggests that Grayscale will have to make some changes particularly to its annual management fee of 2%. Frank said:

I think Grayscale is going to have to respond to this by allowing investors to redeem shares for underlying BTC or the management fee will have to drop.

Meanwhile, on Twitter, some crypto enthusiasts agreed with the narrative that increasing competition could be the primary reason why the premium on GBTC has turned negative.

Premium or Discount

Nevertheless, others still think the discount will not impact Grayscale’s ability to profit from offloading the BTC. For instance, one Twitter user who uses the name Sandwich Toaster, claims that after buying the BTC between $20,000 and $40,000, Grayscale can now “sell them (BTC) with the 11% discount and still make a profit.”

Still, other users like Rama Rao are adamant that the GBTC should be trading at 20% to 30% premium on BTC but not everyone agrees. One user known as JPC thinks the opposite should hold. In his tweet, JPC said:

“GBTC could go to a 20-30% discount as more & more people learn about buying btc directly on exchanges.”