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Largest Bitcoin Fund Hits Record -35% Discount — Warning For BTC Price?

Grayscale Bitcoin Trust (GBTC) is a cryptocurrency fund currently holding 3.12% of the total Bitcoin (BTC) supply, or 640,000 BTC, a record value compared to its underlying assets. It is traded at a discounted price.

Institutional interest in grayscale dries up

On September 23rd, the $12.55 billion closed-end trust was trading at a discount of 35.18%, according to the latest data.

GBTC Discount on Spot BTC/USD Price. Source: YCharts

For investors, GBTC has long served as an excellent alternative for gaining exposure in the Bitcoin market despite its 2% annual management fee. This is mainly because his GBTC is easier for institutional investors to hold as it can be managed in a brokerage account.

For most of its existence, GBTC traded at a hefty premium to find the price of Bitcoin. However, after the February 2021 debut of the first North American Bitcoin Exchange Traded Fund (ETF) in Canada, it started trading at a discounted price.

Unlike ETFs, Grayscale Bitcoin Trusts do not have a redemption mechanism. In other words, GBTC shares cannot be destroyed or created based on fluctuating demand. This explains the heavily discounted price compared to Spot Bitcoin.

Attempts to convert Grayscale trusts to ETFs fell through after the Securities and Exchange Commission (SEC) rejected them in June. could have benefited those who bought the stock at a lower rate.

Grayscale has sued the SEC over its denial of its ETF application. But realistically, it could take years for the courts to make a decision. That means investors will remain stuck with his discounted GBTC stock, which has fallen more than 80% from its November 2021 peak of around $55.

GBTC daily chart.Source: Trading View

GBTC’s 12-month adjusted Sharpe ratio also fell to -0.78. This indicates relatively low expected returns from equities compared to the very high volatility.

GBTC 12-month adjusted Sharpe Ratio. Source: PortfolioSlab.com

Simply put, institutional interest in Grayscale Bitcoin Trusts is drying up.

Spot Bitcoin price warning?

Grayscale is the world’s largest passive Bitcoin investment vehicle by assets under management. However, after the emergence of rival ETF vehicles, they may not necessarily have a strong impact on the spot BTC market.

For example, according to CoinShares weekly report, crypto investment funds have raised about $414 million in 2022 combined. Grayscale, by contrast, has seen a $37 million outflow, including Bitcoin, Ethereum, and other token trusts.

Funds flow by provider.Source: CoinShares

Instead, the daily volatility of Bitcoin’s spot price is largely driven by macro factors, at least for the foreseeable future.

NDAQ vs BTC/USD daily chart.Source: Trading View

Given the consistently negative correlation over the past year in a higher interest rate environment, a stronger dollar will also negatively affect Bitcoin’s upside prospects.

RELATED: BTC Mining Company Compute North Files For Bankruptcy

For example, the US Dollar Index (DXY), which measures the US dollar’s strength against a basket of major foreign currencies, crossed 113 on Sept. 23, a 20-year high. Yields on US Treasury bills rose to 4.21% and 3.69% respectively.

US Dollar Index vs US 10-Year and US 2-Year Treasury Yields.Source: Trading View

However, some on-chain indicators suggest that Bitcoin may hit a bottom soon based on historical data. There is a risk of a drop towards the $16,000 region from the dollar, said il Capo, an independent analyst at Crypto.

BTC/USD 8-hour chart. Source: TradingView/Capo of Crypto

very likely [Bitcoin] We will reject it at the first resistance of 20300-20600,” he said, citing the chart above, adding:

“Wait for a rebound before exiting all markets.”

Other Bitcoin analysts have set even lower targets such as $10,000 to $11,000 as this is a historically high volume range.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investment and trading movements involve risk. You should do your own research when making a decision.