Wealth

GBTC: The world’s first bitcoin asset management product

  Grayscale Bitcoin Investment Trust is an alternative investment fund focusing on Bitcoin. It was established on September 25, 2013 and traded on the OTC trading system in the United States. The code is GBTC. As of June 17, 2022, the scale is 131 Although it only ranked 93rd among the national ETFs in the same period, it is the largest bitcoin spot fund in the world.
  However, according to public information, as of February 10, 2023, the size of Grayscale Bitcoin Investment Trust was only 7.388 billion yuan, a decrease of 5.712 billion US dollars from 8 months ago, a drop of up to 43%. The trend of Bitcoin’s public quotation changes is not consistent. Public data shows that on June 17, 2022, Bitcoin closed at $20,441.30, and on February 10, 2023, it closed at $21,574.80. During this period, there was no decline similar to that of Grayscale Bitcoin Investment Trust.
  As of the beginning of February 2023, the only ETF holding Grayscale Bitcoin Investment Trust is ARK Next Generation Internet ETF, with a market value of US$64.98 million, accounting for 5.13% of the size of Grayscale Bitcoin Investment Trust; ARK Next Generation Internet ETF was established on September 30, 2014 As of February 10, 2023, the asset size is US$1.209 billion. This is a stock-type ETF. The stocks held mainly include Block, Zoom, Tesla, Roku and Shopify Class A shares. ARK Next Generation Internet Another label of ETF is the product issued by “Female Buffett” and “Sister Wood” Kathy Wood’s Ark Investment Management Company. From 2021 to 2022, “Sister Wood” will be popular in the United States with her exaggerated words and deeds and aggressive investment style investment community.
  However, strictly speaking, Grayscale Bitcoin Investment Trust is not an ETF in the ordinary sense, because it has a closed period and does not allow free redemption, and holders can only trade through the OTC trading system, so its liquidity is restricted. Limits, especially in the case of a sharp drop in the trading price of the underlying asset bitcoin held.
Earnings are erratic

  Grayscale Bitcoin Investment Trust only holds bitcoin spot, and any turmoil in the price of bitcoin will cause its yield to fluctuate. Although bitcoin has existed for several years, it is still an emerging alternative asset, and government regulators in various countries often have a less favorable attitude towards it. Coherent, coupled with the fact that the output is greatly affected by mining capacity and computing power, so the price of Bitcoin has experienced a process from obscurity to sudden explosion, then to a sharp drop, and then to a gradual stabilization. During this process, Grayscale Bitcoin Investment Trust’s Earnings also jump up and down. According to www.aastocks.com, as of February 10, 2023, the 1-month, 2-month, 3-month, and 1-year yields of Grayscale Bitcoin Investment Trust are 8%, 32.88%, 10.57%, and -65.58%, while the cumulative returns of the past 3 years and the past 5 years were -12.40% and -25.59%, respectively, and its performance is hardly satisfactory. It should be noted that since the beginning of 2023, Grayscale Bitcoin Investment Trust has performed brilliantly, with a yield as high as 28.71% as of February 10, far exceeding the gains of the S&P 500, Nasdaq and Dow Jones Industrial Average , but it is basically consistent with the increase in the price of Bitcoin during this period. The latter has increased by 31.42% since the beginning of 2023. Considering that Grayscale Bitcoin Investment Trust has an annual management fee of 2% and other friction costs, it can be considered that Grayscale Bitcoin Investment Trust The rate of return is approximately equal to the increase in the price of Bitcoin.
high drop

  Historically, the size of Grayscale Bitcoin Investment Trust was far greater than it is now. On November 10, 2021, the price of Bitcoin reached a record high, and the value of Grayscale Bitcoin Investment Trust also soared, reaching an astonishing $30 billion. However, the price of Bitcoin fell by as much as 32% in just one month after that, dragged down by this, Grayscale The size of the Bitcoin Investment Trust also fell 37%. Moreover, this sharp decline has bred another problem, that is, Grayscale Bitcoin Investment Trust is starting to see a discount. As of December 16, 2021, the gap between Grayscale Bitcoin Investment Trust’s share price and its intrinsic value (the underlying value of its holdings of Bitcoin) has widened to more than 21%, which means that new investors can buy for much less than Bitcoin Buying shares of Grayscale Bitcoin Investment Trust at the actual value price, and due to the existence of the 6-month closed period, the original investors will face a potential loss of more than 20%.
  In addition, the influence between Grayscale Bitcoin Investment Trust and Bitcoin price is actually mutual: on the one hand, the fluctuation of Bitcoin transaction price will affect the intrinsic value and transaction price of Grayscale Bitcoin Investment Trust, but on the other hand, as the world’s largest, The buying and selling behavior of Grayscale Bitcoin Investment Trust, the most powerful Bitcoin holding institution, will also affect the public quotation of Bitcoin. For example, according to the Reddit/CryptoCurrency independent research institute’s tracking of Grayscale Bitcoin Investment Trust’s currency holdings, from February 7 to May 17, 2020, the number of BTC held by Grayscale Bitcoin Investment Trust was within a hundred days. The increase from 283.192 to 343.594 is equivalent to a net increase of 60,000 bitcoins, accounting for one-third of the bitcoin production during this period. Although part of the net increase is due to the division of bitcoins, there are also some Contribution from Grayscale Bitcoin Investment Trust net buying.

  It should be noted that, unlike most ordinary ETFs, Grayscale Bitcoin Investment Trust is more like a closed-end fund. The digital currency group, the parent company of the issuer Grayscale, tries to narrow the existing discount through repurchases, or grayscale Bitcoin Investment Trust was converted into a real ETF, but according to the regulations of the US Securities and Exchange Commission at that time, the issuer could only issue products with digital currency derivatives as the underlying assets.
  Since the underlying assets held are limited to Bitcoin, the net value of Grayscale Bitcoin Investment Trust is “kidnapped” by the price trend of Bitcoin. As mentioned above, the price of Bitcoin reached an all-time high on November 10, 2021, but the net value of Grayscale Bitcoin Investment Trust actually entered the downward channel as early as 8 months ago, and the maximum discount reached by mid-2022. An astonishing 34%, and it has maintained a premium for many years during the period of digital currency mania, and the premium rate was even as high as 130%.
  However, whether it is a premium or a discount, it will be considered an investment risk by regulators. Although Grayscale Bitcoin Trust Company insists that Grayscale Bitcoin Investment Trust is a traditional investment product, and uses global liquid Bitcoin as the underlying asset, similar to SPDR Gold Trust, which uses gold as the underlying asset, but there is actually a big difference between the two. First of all, the price of Grayscale Bitcoin Investment Trust deviates from its net value for a long time, and the range is far higher than other products with real assets as the underlying assets, while the premium level of SPDR Gold Trust is set at -0.5% to +0.5% all year round. One of the reasons for this phenomenon is that the liquidity of Grayscale Bitcoin Investment Trust itself is poor, and the other is that the underlying asset Bitcoin is an emerging alternative asset with large price fluctuations.
Product design flaws

  The issuer of Grayscale Bitcoin Investment Trust is Grayscale Bitcoin Trust, a subsidiary of Digital Currency Group (DCG), one of the largest digital currency management funds in the world, and the largest holder of Bitcoin.
  The Grayscale Bitcoin Trust has been at odds with regulators for being at the forefront of internet money innovation, with government regulators taking different and often changing attitudes towards bitcoin. Grayscale Bitcoin Investment Trust can actually be redeemed within one year of its establishment, but the redemption has been suspended since October 28, 2014, because the US Securities and Exchange Commission believes that its issuer violated the regulations. According to the investigation of the US Securities and Exchange Commission, Grayscale Bitcoin Trust Company arranged for its related party Genesis to repurchase and cancel the shares when issuing Grayscale Bitcoin Investment Trust. This behavior will manipulate the transaction price of Grayscale Bitcoin Investment Trust, which violates the M law. Articles 101 and 102, until the two parties reached an understanding on July 11, 2016, Grayscale Bitcoin Trust Company recognized the redemption fee income of $51,700 and suspended the redemption mechanism.
  Other clashes between Grayscale Bitcoin Trust and regulators centered on the design of Grayscale Bitcoin Investment Trust’s products. According to the documents submitted by Grayscale Bitcoin Trust Company to the US Securities and Exchange Commission, the actual manager of Grayscale Bitcoin Investment Trust is Coinbase Custody, but before August 8, 2015, the custodian of the fund was SecondMarket Holdings (also known as “DCG Holdco”), changed to Xapo Company on August 9, 2015, but its institutional business was acquired by Coinbase Custody on August 16, 2019, so the custodian of Grayscale Bitcoin Investment Trust became Coinbase Custody.
  Grayscale Bitcoin Investment Trust’s design, although compliant, actually has a serious conflict of interest. Grayscale Bitcoin Trust Company issued Grayscale Bitcoin Investment Trust as a sponsor. Customers must pass authorized participants to trade. The only authorized participant of the fund is the above-mentioned Genesis (which is also the fund’s only liquidity provider and product distribution and market agents), while Grayscale Bitcoin Trust Company and Genesis have the sole shareholder, the parent company Digital Currency Group (DCG), and DCG also owns shares in Coinbase, the custodian of the fund.
  In other words, Grayscale Bitcoin Trust Company and its affiliated companies have taken care of every link of the fund’s purchase, distribution, transaction pricing, redemption, etc., and there is a major conflict of interest.
  Therefore, when Grayscale Bitcoin Trust applied to convert Grayscale Bitcoin Investment Trust into a physical ETF, the SEC unequivocally rejected it, and Grayscale Bitcoin Trust CEO Michael Sonashin subsequently issued an order in 2023. In January it said it had filed a lawsuit against the SEC.

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