Everything you wanted to know about Grayscale BTC Trust but were afraid to ask!

[acquafredda]

Speaking of fees I checked out Coinbase Custody and it states the following :

Implementation fee
$0 – $10,000 depending on use-case Custody fee
50 bps annualized
Minimum balance $500,000

I have to admit I didn’t know what bps meant, so I had to seek help on Investopedia - Basis Points (BPS), and according to the table 50 bps would be 0.5%. If I calculate correctly, this would mean that Tesla will pay 0.5% to $1.5 billion - or $7.5 million per year + max $10 000 for implementation fee. Of course, assuming that they really use CC - and that I'm right with my calculation.

I agree that MS and Tesla are in a better position when it comes to the way they stored their BTC, but if they asked you or me what we think about it, the answer would be unique and very clear - "not your keys, not your coins."

The  "not your keys, not your coins." mantra does not apply to everyone as there will always be lazy people and entities that need to rely to an old fashioned way, i.e. to have a third party, a supplier, a custodian call it the way you want that manages the keys for them.
Nonetheless, at these prices, it feels great to be my own bank and that is enough.

[Dabs]

Found this article, maybe a little old:

https://blog.bybit.com/insights/why-does-grayscale-seldom-sell-bitcoin/

For the time being, the trust is not operating any redemption program. Subject to regulatory approvals and the Sponsor’s approval in its sole discretion, Grayscale Trust may reopen the redemption program in the future. Despite the said possibility, GBTC currently shows no intention of seeking regulatory approval for that.

Without a redemption program, GBTC essentially can only purchase Bitcoin but not sell it. The only scenario that GBTC sells Bitcoins is to cover trust fees and expenses.

[fillippone]

Found this article, maybe a little old:

https://blog.bybit.com/insights/why-does-grayscale-seldom-sell-bitcoin/

For the time being, the trust is not operating any redemption program. Subject to regulatory approvals and the Sponsor’s approval in its sole discretion, Grayscale Trust may reopen the redemption program in the future. Despite the said possibility, GBTC currently shows no intention of seeking regulatory approval for that.

Without a redemption program, GBTC essentially can only purchase Bitcoin but not sell it. The only scenario that GBTC sells Bitcoins is to cover trust fees and expenses.

Yes,
for the time being Grayscale is only a Bitcoin guzzlin' machine.
Once they issued their shares, in exchange for the subscriber's bitcoin (or money), and they added BTC to their stash, there is no way for those coins out of it.

As I said, the only scenario, I see this change in the future, is the launch of an ETF, with powerful selling pressure on their shares.
They would then be obliged to buy back their shares to alleviate the negative premium pressure.
But I repeat this is the only scenario I can imagine for them to seek approval to open a redemption program. Otherwise, it's only a deal between the share subscriber and the free market.

[DaRude]

Found this article, maybe a little old:

https://blog.bybit.com/insights/why-does-grayscale-seldom-sell-bitcoin/

For the time being, the trust is not operating any redemption program. Subject to regulatory approvals and the Sponsor’s approval in its sole discretion, Grayscale Trust may reopen the redemption program in the future. Despite the said possibility, GBTC currently shows no intention of seeking regulatory approval for that.

Without a redemption program, GBTC essentially can only purchase Bitcoin but not sell it. The only scenario that GBTC sells Bitcoins is to cover trust fees and expenses.

Yes,
for the time being Grayscale is only a Bitcoin guzzlin' machine.
Once they issued their shares, in exchange for the subscriber's bitcoin (or money), and they added BTC to their stash, there is no way for those coins out of it.

As I said, the only scenario, I see this change in the future, is the launch of an ETF, with powerful selling pressure on their shares.
They would then be obliged to buy back their shares to alleviate the negative premium pressure.
But I repeat this is the only scenario I can imagine for them to seek approval to open a redemption program. Otherwise, it's only a deal between the share subscriber and the free market.

Interesting, i know that they don't offer redemption, but does that imply that they can't do it themselves? If shares are trading at discount, they can't buy up their own shares, sell BTC and destroy the shares?

[fillippone]

Interesting, i know that they don't offer redemption, but does that imply that they can't do it themselves? If shares are trading at discount, they can't buy up their own shares, sell BTC and destroy the shares?

I am not a financial market lawyer, but I think this sequence of action (that is logically correct btw), is highly regulated in traditional financial markets. So I guess they would need at least an approval form regulators before starting buying their own shares as this would need to be done in the secondary market.

[fillippone]

Finally, a little bit of FUDdish article from Bloomberg about Grayscale.
Yes, it’s the leader curse: you have been churning bitcoins at a mad pace for months, but as soon as you start losing a little bit of momentum, do not forget price is not thrice of what used to be three months ago, suddenly everyone is pointing at you as a laggard.
I am not a übersupporter of Grayscale, but this is nonsense.

Biggest Bitcoin Fund Sinks to a Discount as Traders Flee

The world’s biggest Bitcoin fund is selling off faster than the cryptocurrency itself.
The $32 billion Grayscale Bitcoin Trust (ticker GBTC) has plunged 20% this week, outpacing a 13% decline in the world’s largest cryptocurrency. GBTC’s once-massive premium to its underlying holdings has evaporated as a result, with the price of GBTC closing 0.7% below its underlying holdings on Wednesday -- the first discount since March 2017, according to data compiled by Bloomberg.

Also, do not forget that a negative of flat premium is positive for the general public, as they are now allowed  to take a position without paying extra money.
Of course insiders were penalised, but buying overpriced shares rarely leads to a positive outcome scenario.

[DaRude]

Was curious how they'd handle discount

And now we know, no new shares, can't imagine anyone would want to pay more for primary shares just to have them locked for 6 months.

"The Grayscale® Bitcoin Trust private placement is offered on a periodic basis throughout the year and is currently closed."
https://grayscale.co/bitcoin-trust/

[fillippone]

Recently Graysclae premium reduced significatively:

	Pic 1. Premium used to be positive and in the 20% region, but it has lately collapsed reaching negative numbers.

Historically premium never went below zero, but lately, investors sold so many shares to push it into the negative territory for several days:

	Pic 2. Premium turned negative in different occasions lately.

Of course, this means you could go and buy a GBTC share and own roughly 0.09 BTC at discount.
 This is clearly unbearable for Grayscale who is the first benefiter, together with the primary market buyer, of a high NAV premium.
So Grayscale reacted by closing the primary market for GBTC.

	Pic 3. This textbox appears on grayscale.co website when trying to purchase GBTC

You can still buy or trade shares in the secondary market, but the primary market, the issue of new shares, is at the moment closed.

[hugeblack]

Found this:

Biggest Bitcoin Fund, Grayscale $GBTC, is trading at a discount for only the 3rd time ever, and its largest.

Such a discount, after a long time with a premium, is a contrarian buy signal.  The last two discounts saw a 2x and 4X rally over the next few months.

History to repeat?

Grayscale's (GBTC) Market Cap is $30 billion US

Purpose Bitcoin ETF (BTCC/CN) is $454 million CAD.  It has been trading 6 days.

No way a $30 billion GBTC sees enough selling to drive NAV to record negative so only $400 million CAD flows into BTCC.

Source ---> https://mobile.twitter.com/biancoresearch/status/1365714740157284357
I couldn't understand much, can you explain what it means and is this a good or bad sign.

[fillippone]

<...>
Source ---> https://mobile.twitter.com/biancoresearch/status/1365714740157284357
I couldn't understand much, can you explain what it means and is this a good or bad sign.

As the last post underlined, the price is trading at discount to NAV. Of course this is the consequence of some selling pressure. The author says that historically this was a signal of an upcoming rally. Also the author notes that, due to relative AUM sizes, it is very unlikely this has anything to do with the new Purpouse trust.

In all fairness, I can’t see a real correlation between premium and price. There should be a scatter plot on the spreadsheet to highlight this.

[DaRude]

...
Of course, this means you could go and buy a GBTC share and own roughly 0.09 BTC at discount.
 This is clearly unbearable for Grayscale who is the first benefiter, together with the primary market buyer, of a high NAV premium.
So Grayscale reacted by closing the primary market for GBTC.
...

Why is this unbearable for Grayscale? Sure no one would buy at discount on primary market so they might as well close that (as they did) but they still continue to collect their daily managing fee on all outstanding shares. And without a way to decrease outstanding shares (no redemption) i doubt they're complaining much.

[tinopener]

<...>
Source ---> https://mobile.twitter.com/biancoresearch/status/1365714740157284357
I couldn't understand much, can you explain what it means and is this a good or bad sign.

As the last post underlined, the price is trading at discount to NAV. Of course this is the consequence of some selling pressure. The author says that historically this was a signal of an upcoming rally. Also the author notes that, due to relative AUM sizes, it is very unlikely this has anything to do with the new Purpouse trust.

In all fairness, I can’t see a real correlation between premium and price. There should be a scatter plot on the spreadsheet to highlight this.

Later replies also note that the discount may simply be due to illiquidity i.e. not enough buyers.

If that is true, then it's too difficult to draw a conclusion about this.

[thecodebear]

Are we finally seeing the beginning of the end for Grayscale's dominance of the way institutional buyers get exposure to Bitcoin??

Premium has collapsed due to lack of buyers in their primary market. So they've closed the fund, no doubt hoping to build up buy momentum by not allowing buys for a bit. Pretty bad when you are the market leader in the hottest investment in the world but you have to artificially try to inflate your premium/profits by closing the fund.

With other trusts and hedge funds opening up the past couple months, plus the Canadian ETFs just starting recently, I can see the high premium / high fee model of Grayscale starting to seem highly outdated to investors. Premiums and fees should in general shrink close to zero in a world in which there are more and more ways to get into Bitcoin. Not too surprising to see Grayscale market drying up as Wall St gets more and cheaper and more direct options to get into Bitcoin.

Only thing that sucks is that for the past few months we could get a good judgement of institutional buying just from looking at Grayscale, which is obviously not the case anymore.

[DaRude]

Are we finally seeing the beginning of the end for Grayscale's dominance of the way institutional buyers get exposure to Bitcoin??

Premium has collapsed due to lack of buyers in their primary market. So they've closed the fund, no doubt hoping to build up buy momentum by not allowing buys for a bit. Pretty bad when you are the market leader in the hottest investment in the world but you have to artificially try to inflate your premium/profits by closing the fund.

With other trusts and hedge funds opening up the past couple months, plus the Canadian ETFs just starting recently, I can see the high premium / high fee model of Grayscale starting to seem highly outdated to investors. Premiums and fees should in general shrink close to zero in a world in which there are more and more ways to get into Bitcoin. Not too surprising to see Grayscale market drying up as Wall St gets more and cheaper and more direct options to get into Bitcoin.

Only thing that sucks is that for the past few months we could get a good judgement of institutional buying just from looking at Grayscale, which is obviously not the case anymore.

Negative, premium has collapsed due to lack of buyers in their secondary market. Primary market buys at NAV so directly tied to bitcoin price. As far as it being the end for them, only when better alternatives like ETF come online, until then that's the only game in town for pension funds and people who want to hold paper BTC.

[fillippone]

Are we finally seeing the beginning of the end for Grayscale's dominance of the way institutional buyers get exposure to Bitcoin??

Good point.
As you know, if you read this thread, I am not a big fan of Grayscale.
But they actually cleared the way for the new vehicle, showing that the market wanted a lean, effective, safe and tax-efficient way of storing bitcoins.
Of course, as more and more competitor start flowing to this new honeypot, Grayscale is going to lose market share, but I think the market will eventually get bigger and bigger, so they will be able to manage their competitive advantage.
Think about Tesla, the carmaker, not the bitcoin investor. Every time a new competitor in the industry is launching a new model the press calls that a "Tesla killer" when in reality is an "ICE Killer". Tesla could lose market share in the electric industry but can thrive if the industry gets bigger and bigger.

Same things for Grayscale: for sure more competitors can join the market, but the real losers will be those standing out of the market, not Grayscale.

[Karartma1]

I knew I had to come here to get a clear picture of what was happening behind the scenes at Grayscale.

We've been discussing this a lot and now we know that this institutional market will start to resemble more other traditional markets. The good point is that competition is there now, the bad thing could be how the market may react to a move like this one.

GBTC clients need to be put into the equation too: what if they start to leave en masse? Food for thought.

[thecodebear]

Are we finally seeing the beginning of the end for Grayscale's dominance of the way institutional buyers get exposure to Bitcoin??

Premium has collapsed due to lack of buyers in their primary market. So they've closed the fund, no doubt hoping to build up buy momentum by not allowing buys for a bit. Pretty bad when you are the market leader in the hottest investment in the world but you have to artificially try to inflate your premium/profits by closing the fund.

With other trusts and hedge funds opening up the past couple months, plus the Canadian ETFs just starting recently, I can see the high premium / high fee model of Grayscale starting to seem highly outdated to investors. Premiums and fees should in general shrink close to zero in a world in which there are more and more ways to get into Bitcoin. Not too surprising to see Grayscale market drying up as Wall St gets more and cheaper and more direct options to get into Bitcoin.

Only thing that sucks is that for the past few months we could get a good judgement of institutional buying just from looking at Grayscale, which is obviously not the case anymore.

Negative, premium has collapsed due to lack of buyers in their secondary market. Primary market buys at NAV so directly tied to bitcoin price. As far as it being the end for them, only when better alternatives like ETF come online, until then that's the only game in town for pension funds and people who want to hold paper BTC.

Ah perhaps you're right about the secondary as opposed to the primary market. But the main point is both the primary and secondary market have collapsed for Grayscale. This is because there are better alternatives already. Several competing trusts and funds that are cheaper have come out the past couple months, plus there are two Canadian ETFs now that I believe US investors should have full access to (though I'm sure a US ETF will gain a lot more traction than Canadian ones). Both Grayscale markets are collapsing because investors have better cheaper options now that Grayscale isn't the only game in town. It only dominated before because it was the only game in town for people who either legally couldn't or didn't want to directly buy Bitcoin. Grayscale need to drop their fees quite a bit if they want to have any chance of competing against the alternatives.

[JayJuanGee]

I knew I had to come here to get a clear picture of what was happening behind the scenes at Grayscale.

We've been discussing this a lot and now we know that this institutional market will start to resemble more other traditional markets. The good point is that competition is there now, the bad thing could be how the market may react to a move like this one.

GBTC clients need to be put into the equation too: what if they start to leave en masse? Food for thought.

We also know that with markets and players there can be a bit of an overreaction that goes along with momentum that causes the situation to be worse, seem more exaggerated than it is, become more exaggerated than it should be because of short term moves, and maybe even the company reaction could cause some opposite than intended effects.. so yeah, the extremes can cause more extremes that might not have really been there in the beginning and create kind of new reality merely because some investors are overreacting in anticipation to make money on the situation (or not lose as much in the short term).

[DaRude]

Are we finally seeing the beginning of the end for Grayscale's dominance of the way institutional buyers get exposure to Bitcoin??

Premium has collapsed due to lack of buyers in their primary market. So they've closed the fund, no doubt hoping to build up buy momentum by not allowing buys for a bit. Pretty bad when you are the market leader in the hottest investment in the world but you have to artificially try to inflate your premium/profits by closing the fund.

With other trusts and hedge funds opening up the past couple months, plus the Canadian ETFs just starting recently, I can see the high premium / high fee model of Grayscale starting to seem highly outdated to investors. Premiums and fees should in general shrink close to zero in a world in which there are more and more ways to get into Bitcoin. Not too surprising to see Grayscale market drying up as Wall St gets more and cheaper and more direct options to get into Bitcoin.

Only thing that sucks is that for the past few months we could get a good judgement of institutional buying just from looking at Grayscale, which is obviously not the case anymore.

Negative, premium has collapsed due to lack of buyers in their secondary market. Primary market buys at NAV so directly tied to bitcoin price. As far as it being the end for them, only when better alternatives like ETF come online, until then that's the only game in town for pension funds and people who want to hold paper BTC.

Ah perhaps you're right about the secondary as opposed to the primary market. But the main point is both the primary and secondary market have collapsed for Grayscale. This is because there are better alternatives already. Several competing trusts and funds that are cheaper have come out the past couple months, plus there are two Canadian ETFs now that I believe US investors should have full access to (though I'm sure a US ETF will gain a lot more traction than Canadian ones). Both Grayscale markets are collapsing because investors have better cheaper options now that Grayscale isn't the only game in town. It only dominated before because it was the only game in town for people who either legally couldn't or didn't want to directly buy Bitcoin. Grayscale need to drop their fees quite a bit if they want to have any chance of competing against the alternatives.

Primary market just tracks BTC price and cannot collapse especially without redemption. Redemption would provide a floor for the secondary market. Not sure which better alternatives you're talking about, I'm not sure if US retirement accounts are allowed to invest in Canada's ETF on TSX as far as other OTC funds, as long as inflow funds are restricted from trading for 6m-1yr there should always be a premium on secondary market. GBTC has first mover advantage and that means volume, sure other OTC funds can offer lower management fees say 50bps, but with everything else being equal all that would mean that GBTC would be trading just 1.5% lower vs the other fund. I can't see how 2% management fees can cause premiums to go from 40% to a -2% discount.

All the premium discount means is that there are more sellers on secondary market than buyers. It might be simply because of the correction, or rumors of US ETF spooked the market or/and someone is front running the news. With shares trading at discount there's no reason to pay more at the primary and be locked in for 6m when you can pay less for exactly same shares and don't have any restrictions. All the "true" cash that was coming in the primary should theoretically now just come in on secondary, of cours without the in-kind trades and cash that was coming in simply to arb the premium.

[Karartma1]

DaRude, nicely put.

I know the new ETF is Canada based but it'll be a good comparison to understand whether this tool will be the preferred investment vehicle for bitcoin exposure with no hassle or not. It may well be that the trust-like products will prevail, we don't know that yet.

We only need to wait that the US approve a fricking ETF to see what will happen here.

GBTC needs to rethink its strategy or it'll eventually collapse under its huge massive weight. Rumors are that some didn't like their last move.