Grayscale Bitcoin Trust (GBTC) was trading near 19% below bitcoin at points this week, its lowest level in the near two months its been trading at a discount relative to the cryptocurrency.
Market analysis shows the discount on GBTC has rebounded to 12.75% as of this writing, moving erratically with increased volatility in bitcoin. GBTC has not traded at a premium since March 1.
The trust is designed to allow large investors exposure to Bitcoin without having to purchase actual cryptocurrency. Until recently, GBTC has historically traded at a sharp premium to bitcoin.
The evaporation of the premium comes as competition in the space grows. Bitcoin ETFs in Canada have been drawing the attention of investors and offer similar exposure at cheaper prices.
Grayscale Investments LLC, which operates GBTC, recently reiterated its desire to turn the fund into an ETF, joining a glut of applicants lining up at the door of the Securities and Exchange Commission.
Earlier this week, Grayscale indicated it added $283 million in assets to GBTC.
The persistent discount in GBTC means that traders are unable to arbitrage its price against that of Bitcoin, one of the most popular trades in the crypto markets.
Here's how that works:
Accredited investors like hedge funds borrow Bitcoin to subscribe to GBTC shares. These shares carry a six month lock-up. When the lock-up expires, they sell the shares on the secondary market to retail investors, ideally for a premium. They use the proceeds to pay back the lender for the borrowed coins, pocketing the difference.
The GBTC arbitrage only works if its units trade at a premium in the secondary market. This premium has now evaporated, as retail demand has flowed to new, cheaper products, like Canada's pair of Bitcoin ETFs.
The turning tide on GBTC comes as it is showing up on the balance sheets of many quarterly filings for the first time.
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