"Greyscale Fund" has become popular recently. As long as it is a working day, you can buy Bitcoin without any change.
As of now, Grayscale Fund has held more than 500,000 BTCs, worth about 9.2 billion U.S. dollars, equivalent to 2.72% of the total market value of Bitcoins. According to the previous statistics of Chainalysis, if the lost bitcoins are removed,The number of bitcoins owned by Grayscale should account for 3.37% of the real circulation.
Many people think that Grayscale drives the market price of Bitcoin, is that true?
This article attempts to sort out together and unravel the truth about the "Pixiu" of Huidu.
1. What exactly is the "Grayscale Fund" that only buys and buys?
2. Who is subscribing for Grayscale Fund?
3. Why does the grayscale premium exist?
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1. What exactly is the "Grayscale Fund" that only buys and buys?
Grayscale Investment Trust, a grayscale investment company, was established by Digital Currency Group in 2013. It is a digital currency asset management company that serves qualified investors and institutional users (in other words, ordinary small retail investors cannot participate).
The products they provide are divided into 2 types:Single asset trusts and multi-asset portfolio funds.Among them, the single asset trust has a total of 9 products, including Bitcoin trust, Ethereum trust and so on. The multi-asset portfolio fund is a product called Grayscale Digital Large Cap Fund, which includes crypto assets with top market capitalization such as Bitcoin and Ethereum.
Taking the BTC product GBTC as an example, Grayscale is open to qualified investors and institutional users for private placement, allowing them to deposit funds into the trust in the form of cash or BTC (minimum amount of 50,000 US dollars). When an institution buys GBTC, it is equivalent to buying the corresponding share of the BTC held by Grayscale. The GBTC share does not support redemption and needs to be locked for 6 months. The lock-up time of other coins is longer and takes 1 year. After GBTC is unlocked, the holder can only sell it in the stock market and cannot redeem it.
Grayscale does not care about market prices, because its profit comes from management fees, which are 2% for BTC and higher for other currencies. Judging from the current asset size of Grayscale BTC Trust holdings of US$9.2 billion,secondary title
2. Who is subscribing for Grayscale Fund?
Grayscale's holdings have been rising. On November 17, the total scale of grayscale encrypted assets under management has exceeded 10 billion US dollars. Now Grayscale’s new daily BTC holdings are already greater than the output of miners.
According to Grayscale’s 2020 Q3 financial report, the funders who subscribe to Grayscale funds are mainly composed of institutional investors, qualified investors, family offices, retirement account funds, etc.Among them, institutional investors accounted for more than 80%, and more than half of the investors (57%) came from countries and regions outside the United States.
Among institutional investors, hedge funds account for the main part.Hedge funds come for the premium!
The existence of a premium provides an outlet for smart arbitrage funds. For a large amount of funds, it is already a very good achievement to maintain a stable rate of return of about 10%, while Grayscale can achieve an annualized rate of 30% or even higher.
Grayscale supports cash and currency subscriptions. Common arbitrage models are as follows:
1. GBTC cash loan arbitrage
This is the simplest way of arbitrage. Investors use cash (or Bitcoin) to buy GBTC shares. After the 6-month lock-up period, they choose the right time to sell the shares in the secondary market.After deducting related expenses from the cash difference, the rest is profit.The biggest risk of this method is that Bitcoin will fall, resulting in no profit or even loss. In order to curb the loss of Bitcoin price decline, investors can hedge and arbitrage risks in the Bitcoin futures market.
2. GBTC Physical Loan Arbitrage
Institutional investors borrow BTC on the lending platform, and use the borrowed BTC as a capital contribution to subscribe for Grayscale’s GBTC trust shares. After the lock-up period, they sell them in the US stock secondary market at an appropriate time, and at the same time buy BTC with cash and return them to the lending platform.When GBTC is sold, the premium part deducts the relevant expenses and is the profit.
3. Why does the grayscale premium exist?
Do you also want to ask why the price of Grayscale Trust in the stock market has such a high premium. American stock leeks, are you stupid? Why not go directly to the digital currency market to buy?
Super Jun’s previous explanation is more reasonable:The premium in the stock market can be regarded as an insurance premium, which can hedge against the risk of coin loss + risk of fund freezing + potential taxation risk + capital liquidity risk and so on.
From this perspective, Grayscale holds a compliance license and is working as a porter, moving digital assets to the stock and securities market, so that US stockholders can purchase digital currencies more flexibly and quickly. The premium and Grayscale's management fee are the GAP value of the two markets.
4. Can Grayscale’s operation affect the market?
High premium --> attract institutional arbitrage funds to subscribe --> reduce the spot circulation in the digital currency market.
In this product mechanism of Grayscale, arbitrage funds act as"Selling pressure shifted to US stocks, and funds were brought back to the currency circle"porter.
The weekly inflow of Grayscale family products in the past year (dark green represents the inflow of Bitcoin trust funds) Source: Grayscale
As can be seen from the figure above, the April-June period of this year is a wave of subscription climax for Grayscale, and the corresponding share unlocking period will be October-December 2020. Since Q4, the subscription climax has continued. can be understood as,Starting from October, the unlocked trust share will become larger and larger, and the stock of bitcoins in the market will become less and less.From this, Chain Hill Capital judges that it will be bullish on Bitcoin in the fourth quarter of this year and the whole of next year.
Of course, with the entry of platforms such as Robinhood and Coinbase, once the monopoly advantage of Grayscale Fund is disintegrated, the threshold for American stockholders to buy digital currency will be lowered, and this premium space will be gradually compressed and smoothed out. The era of high premiums will come to an end.
