Editor's Note: This article comes fromNiubi circleNiubi circle
Recently, many people have been screened by grayscale. The average daily deposit speed of GBTC exceeds 1000BTC, and the high premium of GBTC shares in the secondary market is indeed what we most hope to see when we are waiting for a bull market. And according to Grayscale’s own disclosure, depositors are mainly institutions, and various media have reported on this phenomenon with headlines similar to “Institutions are rushing to buy GBTC’s net worth of chips to a new high.”
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As of May 21, the grayscale holdings, if reversed by AUM, GBTC now holds a total of 365,798 BTC.
But when this kind of narrative was rampant, another theory began to be popular in the market, that is, the entry of institutions is actually aimed at the premium of GBTC in the secondary market. They are not here to take orders, but to "cut leeks". When the GBTC share in these quarters is unlocked and the premium in the secondary market is wiped out, the wave of deposits will be unsustainable. What has actually happened? To explain this problem clearly, we must first understand how Grayscale's GBTC works.
The GBTC share does not support redemption, but it can be sold in the secondary market 12 months after the deposit. Since Grayscale registered as an SEC reporting company earlier this year, the waiting time in December has been shortened to 6 months. And even if you do not meet the conditions for participating in the primary market fundraising, as long as you have a US stock account, you can also trade GBTC in the secondary market, just like buying and selling other stocks in the US stock market.
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So far, the AUM of GBTC is about 3.2 billion US dollars, and about 73% of the shares are circulating in the secondary market. Although the share of circulation in the secondary market generally follows the price trend of Bitcoin, there has always been a considerable premium relative to the actual price of Bitcoin, usually exceeding 20%, and reaching a peak of 132%. What caused this supply and demand imbalance, with prices so far away from net asset value?
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Although GBTC is not an ETF, it is the first and currently the only investment product that can be traded in the US stock secondary market and track the price of Bitcoin. As long as you have a brokerage account, you can trade and hold GBTC. In the United States, where the securities industry is very developed, it is indeed much more convenient than opening another account at a specialized digital asset exchange. In the latter case, you have to worry about physical bitcoins storage issues. Another reason is taxation. The annual tax season is the most troublesome period for US currency holders, because the rules of the IRS seem to be changing all the time. They even issued special guidance documents on whether to file tax returns for forked coins and airdrop coins. And if you hold GBTC, there is no such trouble at all, as long as you pay capital gains tax like other stock transactions.
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GBTC is impressively listed in Charles Schwab's Self-Directed 401k stock holding data.
As we write here, we know that GBTC has maintained a considerable premium over the advantages of holding physical bitcoins and the needs of users. Then it is very simple to explain the rumor that "institutions use GBTC arbitrage to 'cut leeks'", that is, institutions borrow BTC to participate in the private placement of GBTC in the primary market, obtain GBTC shares, and wait for 12 months (beginning at the beginning of this year, it became 6 month) and sell it in the secondary market, and then buy BTC to repay the loan, then the premium of GBTC share relative to BTC is the profit part. And we know that compared to the premium of GBTC, the interest rate of borrowing BTC is much lower. Although there is a waiting time of 6 months for this operation, as long as the premium is still there, it is empty handed wolf, and there is no risk. In addition, institutions can also directly buy BTC on the spot, deposit to obtain GBTC shares, and at the same time use futures to open short hedging. After GBTC is unlocked, it is sold in the secondary market, and the futures are sold out for arbitrage.
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According to the data released by Grayscale, more than 70% of the private placements in the second and third quarters of 2019 were customers using their own BTC to replace GBTC shares, and the remaining less than 30% were cash deposits. . This inevitably makes people wonder how much of such a high proportion of BTC deposits is for arbitrage transactions. Although Grayscale will no longer publish relevant data in the subsequent quarterly reports, we can estimate that deposits in the form of BTC will still maintain a similar ratio. In addition, some people pointed out that there is a great correlation between the strong deposit growth of GBTC in the past six months and the growth of the loan amount of Genesis Capital, a brother company of Grayscale.
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According to Nic Carter, the large deposit at the end of October 2019 will have a big impact on the market premium after it is unlocked at the end of April this year.
In fact, as early as the beginning of this year, after Grayscale released the primary market fundraising data in the fourth quarter of 2019, Nic Carter and others predicted that when these GBTC shares are unlocked in the secondary market in April and May 2020, the The percentage of the premium was driven down to single digits. Undoubtedly in his opinion, a considerable proportion of the record-breaking deposits at the end of October 2019 were for arbitrage purposes. It's just that we checked the recent data and found that the premium is still roughly maintained at around 20%. This can be explained that under the stimulus of halving, the strong demand in the secondary market has kept the premium at a high level.
