Grayscale Bitcoin Trust is trading at a huge discount and the outflows are consistent. But before we get into the details, let’s talk about Charles Ponzi, a man who infamously carries the torch for all scams with his last name. Funny enough, the original Ponzi scheme cost investors $20 million in early 20’s and ran for over a year. Since then, the devil has had lots of time to learn and it really shows. While the FTX collapse is behind us, the chaotic state of affairs is here to stay with us for the rest of the year. And in chaos, one might find the most unexpected outcomes previously thought to be impossible. What is this unlikely phenomenon? Well, super-rich people are losing money on Grayscale Bitcoin Trust.
For those who don’t know, Grayscale is the largest cryptocurrency fund in the world. For the most part, their financial services are exclusive to ultra-wealthy clients with very large investments. At this point, Grayscale holds about 3.5% of world’s Bitcoin and their shares are going down. Their largest digital asset holding is Grayscale Bitcoin Trust (GBTC) which used to be a banger. Unfortunately, the share price for the $10.5 billion GBTC has plummeted 40% as investors rush to exit. Ironically, Michael Sonnenshein, the CEO of the investment giant had said that investors see crypto crash as an opportunity!
Grayscale Bitcoin Trust (GBTC) Down!
In total, GBTC investors are down 83% since Bitcoin peaked in November 2021. Now, Bitcoin itself is down 74% in the same timeframe. To sum up, Grayscale Bitcoin Trust investors have endured a massive loss trusting Grayscales’ Bitcoin Trust.
2021 has not been kind to cryptocurrency investors to say the least. However, the bear market has revealed the dark side of crypto startups and investment firms. The recent FTX implosion came not long after the collapse of Terra (LUNA). In The meantime, the upcoming regulations bring too much uncertainty. Now, putting that on top of all the loss in the market, we are left with no hope, at least for short-term.
On top of that, crypto broker Genesis Trading also had a vibe check on Wednesday. Last year, Genesis Trading originated over $50 billion of loans. A few days ago, they suspended redemptions and originations of loans at its lending arm. This was due to contagion from the collapse of Three Arrows Capital.
Both Grayscale and Genesis are subsidiaries of Digital Currency Group which is a venture capital company based in Connecticut.
The GBTC Problem
Grayscale Bitcoin Trust launched back in 2013 as a private placement offering. Back then, it was not as easy to buy and sell Bitcoin. Mind you, many of the reliable crypto exchangers did not exist back then. With that in mind, GBTC was a great vehicle for holding Bitcoin.
However, with the introduction of Bitcoin ETFs and the rise of popular exchange apps, Grayscale does not have any edge in the competition left. Bear in mind that Grayscale charges a premium at 2% a year while ETFs tend to charge less than half.
Pairing that with the Genesis Trading problem ad we can now see why GBTC is down more than Bitcoin itself. Furthermore, Grayscale does not actually have a buyback program. Subsequently, investors cannot redeem GBTC for BTC or cash and will only be able to sell it to another buyer in an over-the-counter market.
Now, the securities and exchange commission has blocked all plans to exchange GBTC into a spot Bitcoin ETF. Grayscale is now suing the SEC to attain the right to convert GBTC.
At this point, Grayscale is cornered by regulations and the fate of GBTC depends on the ability to convert GBTC. We will post updates in the situation at hand as soon as we have more information.