Grayscale Bitcoin Trust (GBTC), the world's biggest closed-end bitcoin fund, saw its trading price fall twice as much as the drop in the price of bitcoin.
Market data from YCharts shows that shares of GBTC are now trading nearly 10% lower than the value of its underlying bitcoin. This follows recent reports that GBTC shares traded at an 11.5% discount, which resulted in the asset manager halting private placements in the trust.
According to a March 25 Bloomberg report, GBTC closed over 14% below the value of its underlying holdings on Wednesday, the largest discount ever reported by the fund. The report suggests that the event highlights "the extent to which the latest leg of the retail-driven crypto craze is cooling," given that for most of its history the fund traded at a significant premium over the bitcoin it held. Bloomberg Intelligence analyst James Seyffart explains that what happened is not unexpected:
GBTC has a fixed supply and acts like a leveraged play on Bitcoin. [...] As price goes down, sentiment goes down, GBTC is going to fall further than Bitcoin. Same thing happens on the way up.
Such events highlight the need that bitcoin investors have for an exchange-traded fund (ETF). Unlike the Grayscale Bitcoin Trust, ETFs have a redemption mechanism. The website for Purpose Bitcoin ETF, a recently-launched Canadian Bitcoin ETF, explains:
An ETF provides a more pure exposure to Bitcoin and the structure better reflects what investors are looking for – to track the price of Bitcoin. Unlike ETFs, closed-end funds cannot quickly add or remove units to maintain consistent exposure. [...] An ETF has a robust creation and redemption process that allows exposure to expand and contract as necessary to accommodate demand.
Many financial institutions are optimistic about the prospects of a U.S.-based Bitcoin ETF after a change in leadership at the Securities and Exchange Commission. Earlier this week, First Trust and Anthony Scaramucci's Skybridge both filed for a Bitcoin ETF. This follows earlier Bitcoin ETF filings from VanEck, NYDIG, WisdomTree, Grayscale, and Valkyrie.