Grayscale Investments’ investment fund manager, Joannes Vermorel, has announced that they will be unlocking the 2.1 million Bitcoin they purchased in Grayscale Bitcoin Investment Trust for investors in October. This is an interesting move, as Grayscale is primarily focused on long-term investment, so they will likely be cashing in on the price of Bitcoin, which plummeted from $7,000 to $3,500 in the past month.
Recently Grayscale Investments, which manages Bitcoin and Bitcoin Cash investment trusts, has launched its Bitcoin Cash “Unlocking Event” which will allow Bitcoin Cash investors to sell their BCH for Bitcoin while keeping an equivalent value in BCH. Over the past several weeks, the price of Bitcoin has been falling, and at the time of this writing, is hovering around $3,500. Since its inception in 2009, Bitcoin has risen in value considerably, and at the time of this writing is valued at over $80,000.
Bitcoin is still the best-performed cryptocurrency yet, despite the latest sell-off. The currency has endured a miserable year of setbacks, including a hack that resulted in the theft of $72 million worth of cryptocurrency in June, and a $1.8 million theft at Coinrail in South Korea last week. But Bitcoin is holding up better than most other currencies, and it’s looking more likely than ever that it will overtake the long-standing record of $20,000 per Bitcoin set by the cryptocurrency on December 17, 2017.
Whether a potential sale of shares linked to a billion-dollar bitcoin (BTC) investment fund could drive down spot prices for the cryptocurrency has been the subject of heated debate among analysts in the field.
Grayscale markup remains negative for several months
The dispute involves Grayscale Bitcoin Trust, the world’s largest manager of digital assets, which allows institutional investors to indirectly influence the bitcoin market through its GBTC product. Investors buy GBTC shares directly through Grayscale in daily private placements and pay in bitcoin or US dollars.
However, investors can only sell their GBTC shares to others on the secondary markets after a six-month lock-up period. They therefore assume liquidation at a premium if the market price at the time of the sale is higher than the value of the own assets (NAV).
On the other hand, the liquidation of GBTC shares when the share price has fallen below the NAV results in losses. Thus, if investors decide to dispose of their GBTC packages, they will have to accept financial losses. This is due to the fact that the share price has increased at a discount from 24. February 2021, i.e. is below their NAV.
The premium forGBTC has been negative for several months. Source: ByBt.com.
Some analysts, including strategists at JPMorgan, believe accredited investors will sell at least some of their GBTCs after the lock-in period in July, which would further exacerbate the downward trend in the bitcoin market.
Despite this week’s correction, we don’t want to give up our negative view of bitcoin and the cryptocurrency markets in general. So despite some improvement, our signals remain predominantly bearish, said Nicholas Panigirtzoglu, chief strategist at JPMorgan, in a note to clients.
However, other analysts believe this event will push sellers out of the market in July, increasing both volatility and upside potential to new all-time highs.
Does the price of bitcoin correlate with Grayscale’s unlocking data?
These were GBTC shares bought by investors in December 2020 at a premium of about 40%, Panigirtzoglu said. Grayscale Bitcoin Trust raised $2 billion this month, followed by $1.7 billion in January.
That means about 140,000 bitcoin shares will be unlocked by the end of July. Between mid-April and mid-June, about 139,000 bitcoins have already been issued, a period that also coincided with the collapse of the BTC/USD exchange rate from about $65,000 to $28,800.
Lyn Alden, founder of Lyn Alden Investment Strategy, noted a correlation between the bitcoin spot price crash and Grayscale’s GBTC unlock periods, and noted that the same could happen if more shares unlock in July.
greyscale Bitcoin Trust unlock data. Source: Bybt.com.
Alden suggested that the correlation indicates a slowdown in Grayscale’s neutral arbitrage operations.
In an arbitrage transaction, institutional investors (e.g. hedge funds) borrow bitcoins to buy GBTC shares. These investors then sell the GBTC shares on the secondary market to retail investors after the lock-up period, usually at a premium. They then return the borrowed bitcoins to their lenders and receive the difference.
Part of the rise in the second half of 2020 was due to Grayscale’s neutral arbitrage trade, which attracted a ton of bitcoins, Alden tweeted late Monday, adding:
As ETFs and other new ways to access bitcoin have made GBTC less unique, the premium has disappeared, as has neutral arbitrage.Grayscale Investments stopped selling GBTC shares after February 2021. Source: ByBt.com.
However, according to David Lifchitz of ExoAlpha, the arbitrage strategy may have contributed to, but did not cause, the sharp drop in the bitcoin price.
The CIO noted that a true GBTC arbitrage strategy is for investors with deep pockets. After all, they would have to hold a short position in bitcoins during the GBTC lock-in period – the cost of overtime could make up the price difference achieved through arbitrage.
As for ordinary buyers of GBTC shares at a discount, who have not sold short against BTC, their profits depend on the price at which they bought the GBTC: If they bought between $40,000 and $60,000, they’re taking a loss today and may not want to sell yet to lock in their loss, he told Cointelegraph.
Michael Sonnenschein, CEO of Grayscale, told Barron’s that investors buy GBTC stocks with a medium- to long-term perspective. Therefore, they may not wish to dispose of their shares immediately after publication.
I would generally say that investors will certainly think about how the stock price compares to the intrinsic value or bitcoin before thinking about liquidity.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and every transaction involves risk. So you need to do your own research before making a decision.Grayscale Investments, a subsidiary of digital currency startup Digital Currency Group, announced that it has initiated a series of Bitcoin (BTC) and Ethereum (ETH) purchases on the open market to unlock a long-awaited Bitcoin (BTC) and Ethereum (ETH) futures platform.. Read more about grayscale unlock march 2021 and let us know what you think.
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