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The time of dreams
Bitcoin has been in slow motion for over a month now for several reasons, including a crackdown from China and mixed messages of support and skepticism from Elon Musk. But another dynamic that has little to do with the fundamental digital currency issue could weigh on it for next month, analysts at JP Morgan said.
The largest Bitcoin fund provider, Grayscale, periodically sells shares of its most popular fund, the Grayscale Bitcoin Trust, which now has $ 21.9 billion in assets under management. This trust is set up as a private placement, where qualified investors can purchase shares directly from Grayscale. After six months, they can sell these shares on the public markets under the GBTC ticker.
In June and July, the lock-up ends on GBTC shares that sold in late 2020 and early 2021, and JP Morgan expects many investors who bought six months ago to start selling. There was a strong demand for trust at that time, when Bitcoin was on the rise.
As a reminder to our readers, last December and January saw the highest monthly inflows into GBTC, of $ 2 billion and $ 1.7 billion, respectively, largely reflecting GBTC premium monetization transactions by retailers. hedge funds and other investors, JP Morgan analyst Nikolaos Panigirtzoglou wrote. As the six-month lock-up period expires in June and July, these investors are likely to sell at least some of their GBTC shares, putting downward pressure on GBTC prices and the Bitcoin markets more generally.
They wouldn’t be the only ones running away from Bitcoin. The most valuable cryptocurrency has fallen dramatically over the past two months, from its all-time high of $ 64,800 to a recent $ 34,300.
Grayscale occupies a prominent place in the crypto ecosystem, offering products that track several digital assets that have become popular with institutional investors. The Bitcoin Trust owns Bitcoin (and only Bitcoin) and acts like a closed-end fund in that it can trade at a discount or premium to its net asset value. Publicly traded stocks mostly traded at a premium to Bitcoin for the first five years after its launch in 2015, as it was a unique product and mainstream investors had little other means of investing. ‘buy Bitcoin. In recent months, however, it has traded at a discount. This is probably because there are more ways to buy Bitcoin now, and therefore the scarcity value of funds has decreased. Investors can buy Canadian exchange-traded funds that hold Bitcoin, for example. And companies like PayPal Holdings (ticker: PYPL) make it easy for customers to buy and sell Bitcoin. The trust is now trading at a 9% discount, and the discount has reached 20% this year.
Michael Sonnenshein, CEO of Grayscale, said in an interview that Grayscale has stopped its private placements since March due to the haircut, why would investors buy it at its net asset value when they can buy shares in the market free for less? He disagrees with JP Morgan on the potential selling pressure of GBTC once the last block expires.
Generally speaking, our investors see this in the medium to long term, he said.
Additionally, investors might not want to sell immediately in a declining market where the asset they are selling is trading for less than its net asset value.
I would generally say that investors are definitely going to think about where the stock price is, relative to NAV or relative to Bitcoin, before they think about getting cash, Sonnenshein said.
The Grayscale Bitcoin Trust could see more changes to come. Grayscale has requested its conversion into an ETF a development that could bring substantial interest to the product but would mean that discounts and bonuses would disappear.
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