Grayscale is Not Buying Record Bitcoin, It’s Just Ripping Off Retail investors

Ever since the coronavirus pandemic began, bitcoin has been on a rollercoaster ride. While the BTC price has been trying to push higher, in May, miner rewards were cut into half to 6.25 BTC.

After miner inflow was reduced by 50%, there have been reports of Grayscale’s GBTC Bitcoin Trust buying the digital currency at record pace.

Currently, GBTC shares are trading at a premium of 20% to Bitcoin with each share cost $10.76 where each share represents 0.00096070 BTC which means one BTC is worth $11,200 here while Bitcoin is trading on spot exchanges just under $9,400.

Grayscale’s Ethereum product ETHE is trading even at a higher premium of 750%, 46% above ETH's ATH.

A FINRA-approved investment vehicle, Grayscale held more than 300,000 BTC prior to the March 12 crash. Recently, it was revealed, the crypto hedge fund Three Arrows Capital has become the qualified investor to hold more than 6% of Grayscale Bitcoin Trust (GBTC) shares.

The fund has amassed more than 21 million GBTC shares, worth nearly $259 million or just over 20,230 BTC.

Retail Investors getting Ripped Off

Since halving, Grayscale has been gobbling up 50% more BTC than has been created. The news excited the crypto market given that bitcoin supply in the market has already cut down and with Grayscale consuming all the Bitcoin that is being created in the market and more, this should drive the prices up.

But that’s not really the case!

According to Ryan Watkins of Messari Crypto, Grayscale actually bought way less, just 31% of all new bitcoin mined since the halving.

This is because of the in-kind purchases. “~80% of the money it reportedly pulls in do not make up for any buy pressure,” because they were ‘in-kind’ purchases. Basically, these institutional investors can hand out their own BTC in order to ‘buy' the GBTC shares.

GBTC shares are available to accredited investors and are created using cash or cryptocurrency with a year lock-up period, to be reduced to 6-month, which means initial investors can sell their shares to the public on secondary markets after the period is over. Watkins explained,

“When there are a lot of buyers and few sellers, investors in the secondary market can push the price of the shares well above the value of the underlying cryptocurrencies.”

“Since no new shares are being created, no new cryptocurrency is actually going into the trust, creating a premium to the underlying. This can create a significant arbitrage opportunity for accredited investors who can create new shares in the primary market.”

21shares, previously known as Amun, also shared in its report that buying bitcoin at these premiums makes sense if one is an institutional investor and creates shares at NAV but retail investors are simply getting “ripped off.”

Given these high premiums on products, it is unlikely that savvy or institutional investors are buying them. It’s the retail investors that are buying GBTC shares to get exposure to Bitcoin through their brokerage accounts or 401Ks.

It’s the “institutional and accredited investors that create GBTC are able to resell at large markups” and of course, Grayscale is benefitting from retail overpaying, said Lanre Ige of 21shares.

Get Free Email Updates!

*Action* Enter Best Email to Get Trending Crypto News & Bitcoin Market Updates

I will never give away, trade or sell your email address. You can unsubscribe at any time.

AnTy
AnTy
AnTy has been involved in the crypto space full-time for over two years now. Before her blockchain beginnings, she worked with the NGO, Doctor Without Borders as a fundraiser and since then exploring, reading, and creating for different industry segments.

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

LEAVE A REPLY

Please enter your comment!
Please enter your name here

3,511FansLike
2,795FollowersFollow
4,275FollowersFollow

Live Bitcoin Price & Latest BTC Charts

Today's Latest Crypto News

SEC Proposes $5 Million Settlement in Kik’s $100 Million Initial Coin Offering (ICO) for KIN

Kik Interactive, the embattled Canadian messaging startup, seems to have finally reached a settlement deal with the SEC regarding its illegal ICO back in...

First UK Public Listed Company, Mode Global Holdings, Converts 10% of Cash Reserves into Bitcoin

What started with public listed company MicroStrategy has now become a movement as more and more companies continue to join the ranks. This month, after...

Bahamas Central Bank Launches The First Public CBDC, The ‘Sand Dollar’ To Its Citizens

The Bahamas is the first state to launch its central bank digital currency (CBDC). The ‘Sand Dollar’ is available nationwide, allowing users to...

BTC Price & PYPL Stocks Rejoice as PayPal Announces Support for Bitcoin, Ether, BCH & LTC

PayPal has officially gone crypto. The online payments company is now allowing its customers to buy, sell, and hold bitcoin and other digital currencies in...

Unstoppable Domains & Chainlink Launch On-Chain Twitter Verification For .Crypto Domains

Unstoppable Domains announces .crypto domain users can now verify their address using their Twitter usernames before sending out cryptocurrencies. A partnership between Unstoppable Domains,...

BitcoinExchangeGuide is a hyper-active daily crypto news portal with care in cultivating the cryptocurrency culture with community contributors who help rewrite the bold future of blockchain finance. Subscribe on Google News, see the mission, authors, editorial links policy, investment disclaimer, privacy policy. Got News? Contact us, we are human too. Note: nothing here is financial advice, do your own research thoroughly.

Start Using Crypto Today