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The five main cryptocurrencies managed by Grayscale Investment Holdings now hold a negative premium. Previously, Morgan Stanley reported holding 928,051 GBTC shares.
What do negative premium rates mean?
Low and high premiums are indicators of Bitcoin inflows into the trust. When the premium is declining, it means that Bitcoin inflow into the trust is slowing down. Negative premium rates mean that GBTC trades at a discount in accordance with the spot price of Bitcoin. Volatility on the Bitcoin market that leads to rapid price increases usually causes a premium rate dropdown since the fund's shares are not catching up with Bitcoin's rates of growth.
How might it affect the fund and the crypto market?
First and foremost, negative premium rates give investors a signal about current market risks and may push them away from investing in the Grayscale fund. There is a difference between the profitability of the fund and the risk premium. While the asset itself trades with a significant profit, institutional and private investors tend to avoid investments in assets with negative premium rates.
The largest fund at Grayscale Investments is the Grayscale Bitcoin fund, which has held a negative premium rate since February 2021 and is currently trading at a -15% premium. All of the major cryptocurrency funds of Grayscale Investments now have negative premium rates after LTCN (Litecoin Trust) hit the -0.7% premium.
Negative Bitcoin movements like the one witnessed in May usually work in favor of the trust's premium rates since the spot price comes closer to the NAV (net asset value). In periods of positive premium rates, GBTC faces a large institutional investments volume since the risk/reward ratio becomes more pleasing for fund managers. Minimal fund entry remains at $50,000, which makes it unattractive for small retail investors.
Vladislav Sopov