Bitcoin Trust GBTC Shares Spike Despite 30% Premium

The oldest running regulated Bitcoin Investment Trust (OTCQX: GBTC) managed by Grayscale was established in 2013 and is sold to accredited investors. GBTC is considered the first publicly quoted security that derives its value from BTC and the value of GBTC shares have been rising alongside BTC this week.

GBTC shares touched a low of $7.98 on January 2 and the price has jumped 44% to $11.52 on February 5. Most of the time, GBTC is trading at a premium which is 20-30% higher than spot market prices.

Bitcoin and cryptocurrency prices have seen significant gains as the entire cryptoconomy is up more than 40% since mid-December. Grayscale’s Bitcoin Trust (GBTC) has also seen an uptick and shares have climbed 9% this week.

The news follows the asset manager’s recent registration as a reporting company with the Securities and Exchange Commission (SEC) and the private placement of its shares. In the last three weeks, GBTC’s price has jumped more than 44%, mimicking BTC’s price patterns despite having a significant premium.

Demand for Grayscale Grows

The trust’s shares really started popping on Monday, January 7. At the time, market analysts cited geopolitical turmoil was priming safe-haven assets like precious metals and cryptocurrencies. Moreover, speculators believe bitcoin’s current rising prices are reflective of the upcoming BTC halving that’s going to slash block rewards in May 2020. Financial columnist Joe Tenebruso noted when GBTC’s shares spiked in January that Grayscale’s investment trust is “an imperfect proxy for the price of bitcoin.”

Bitcoin Trust GBTC Shares Spike Despite 30% Premium

GBTC or the Bitcoin Investment Trust is Grayscale’s first crypto fund but the company now manages 10 crypto funds in 2020.

“The trust is currently trading at a nearly 30% premium to the value of the underlying cryptocurrency that it holds”, said Tenebruso at the time. “However, unless a bitcoin exchange-traded fund is approved by regulators, investors who do not wish to deal with the security and other operational challenges that come with holding actual bitcoin will probably continue to use Grayscale Bitcoin Trust as a means to gain exposure to the cryptocurrency.”

Bitcoin Trust GBTC Shares Spike Despite 30% Premium

GBTC shares touched a low of $7.98 on January 2, 2020, and the price jumped 44% to $11.52 on February 5, 2020, and then $11.65 one hour later.

The GBTC premium follows Grayscale’s resumption of the private placement of its shares. Private placement buyers wait for one year and they can choose to sell their GBTC shares after the holding period. Private placement is offered once in a while throughout the year to accredited investors. GBTC’s private placement concept gives investors access to unique liquidity opportunities. The reason for the wait time is because the shares are not registered under the Securities Act and investors are subject to the one-year holding period. “The Trust’s investment objective is for the value of its shares (based on Bitcoin per share) to reflect the price performance of Bitcoin, less fees and expenses”, Grayscale disclosed. The fund management company added:

The trust is solely and passively invested in bitcoin and was created for investors seeking exposure to bitcoin through a traditional investment vehicle. As of January 10, 2020, the trust has more than $2.06 billion in assets under management (AUM) and each share of the trust represents 0.00096884 Bitcoin.

After opening up private placement options, Grayscale obtained the status of a reporting company from the U.S. Securities and Exchange Commission (SEC) at the end of January 2020. The fund management company registered with the SEC in November and the firm manages 10 different cryptocurrency investment products. “As many institutions restrict investments in instruments that are not registered with the SEC, a broader set of investors may now begin to consider the trust accordingly”, Grayscale explained on January 21.

GBTC typically mimics BTC price movements on spot exchanges. However, GBTC often has a higher premium than the global spot market price for BTC.

The managing director at Grayscale, Michael Sonnenshein, said the trust’s sponsor sought out the reporting company designation and looks forward to working with the U.S. regulator. “Grayscale Bitcoin Trust becoming an SEC reporting company marks an incredible milestone for the trust, Grayscale as an asset manager, and the digital currency industry as a whole”, Sonnenshein stressed.

“The announcement should signal to investors that our regulators are willing to engage with our products and our space as a whole. Even though it will require more rigorous reporting standards, it is a new level of transparency and reporting that we believe investors deserve”, Grayscale’s managing director further stated.

Because the U.S. Securities and Exchange Commission (SEC) has yet to approve a regulated bitcoin exchange-traded fund (ETF), some people believe this is why GBTC often sells for a much higher premium.

The U.S. regulator has yet to approve an ETF, and because of this wait, GBTC’s shares are likely benefiting. Analysts like Tenebruso believe GBTC will continue to “mimic the price movements of bitcoin in the days and weeks ahead.” That’s been the case so far and despite crypto spot prices being lower, the regulated shares are still being acquired for a much higher premium.

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