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World's Largest Bitcoin Fund Is Down Almost 18% - Is It Time To Buy Or Sell?

"Tempting but tempting the way value traps can be tempting," Spectra Markets' Brent Donnelly wrote in an investor note.

With just over $38 billion in assets, Grayscale Bitcoin Trust  (GBTC) - Get Grayscale Bitcoin Trust Report is the biggest bitcoin fund in the world by a stretch. Launched in 2013, it has 3.5% of the world’s entire bitcoin supply and runs 13 other cryptocurrency-focused trusts.

But the company has not been having a great run in recent weeks, as shown by the numbers released by Grayscale on Twitter  (TWTR) - Get Twitter, Inc. Report. At $28, shares are down 18.24% for the start of 2022 so far and, according to a calculation done by Bloomberg, are 26.5% below the value of bitcoin.

Why Is It So Low?

Such a drop could indicate several things: an ongoing crypto selloff, cryptocurrency's general volatility or a rise of other funds hitting the market. While the next-biggest fund ProShares Bitcoin Strategy  (BITO) - Get ProShares Bitcoin Strategy ETF Report has only $1.3 billion in assets, a number of other funds that allow investors to partake in the bitcoin craze without owning it directly are springing up on the market.

But in general, there is a current cryptocurrency selloff — bitcoin briefly fell below $40,000 for the first time in months last week and many investors are currently dropping shares to avoid a further drop.

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Last year, Grayscale applied for Securities and Exchange Commission clearance to convert GBTC into an ETF. Doing so would allow it to maintain competitive lead as an asset manager. But according to some analysts, the fund is in trouble if it depends so heavily on its issues being solved by the conversion alone especially as it has not yet gotten approval.

So Should I Buy Or Sell?

"GBTC keeps breaking hearts as the discount widens," Spectra Markets President Brent Donnelly wrote in an investor note first dug up by Bloomberg. "GTBC is basically a binary bet on a physical ETF at this point. Tempting but tempting the way value traps can be tempting."

At the same time, many others are confident in GBTC's future due to its size and plans to keep up with cryptocurrency. For those who do not want to own bitcoin directly, it can be a good option in the long run.

"Right now, GBTC is in a fairly enviable position. It's got nearly $40 billion in assets in a product that charges 2% annually," David Dierking wrote for TheStreet's RealMoney. "Does Grayscale really want to mess with such a cash cow? It might need to in order to compete, since a spot bitcoin ETF would be far superior to a bitcoin trust in terms of structure."