Grayscale Bitcoin Trust suspends new investments after GBTC negative premium exceeded 15%

According to BlockBeats, Grayscale has suspended the sale of GBTC shares. On March 5, the price of GBTC equivalent shares reached a record negative premium of 15%. Grayscale will periodically suspend investment services similar to trusts and then restart them. It is not clear whether this suspension is a normal shutdown.

GBTC shares trade at a premium to the equivalent Bitcoin held by the trust, a result of excess retail demand. At the same time, institutional clients are able to purchase shares directly from Grayscale at par. This demand volatility creates arbitrage opportunities where clients can buy shares directly from Grayscale at par, hold them for a 6-month lockup period, and then sell them at a premium in the secondary market.

The 36,000 BTC-equivalent GBTC shares issued by Grayscale in August 2020 completed a six-month lockup period in February this year. At the current Bitcoin price of $56,800, the value of the “unlocked” Bitcoin has increased by a total of $2 billion, which may increase selling pressure on GBTC. This potential impact is relevant even if most of the trading volume is completed by buying BTC futures contracts and selling GBTC shares at the same time to complete premium arbitrage transactions.

While BTC futures are liquid enough to absorb this volume, retail demand for GBTC shares may decline due to the ETF effect discussed previously — not to mention the negative sentiment following BTC’s 26% drop after hitting a high of $58,300 on February 21. However, the 15% Bitcoin discount seen on March 5 does not seem sustainable. Even if there is currently no way for market makers to purchase these shares and convert them back to Bitcoin, Grayscale Investments could buy them back and profit from the difference.

As it stands, it is unlikely that GBTC holders will panic sell in this unusual situation. On the other hand, investors who are waiting for a 5% or higher premium may be disappointed, as the Canadian ETF appears to be a better product for retail investors.