GBTC shares may continue trading at discount, Bitcoin volatility to remain under pressure until August

  • Grayscale Bitcoin Trust (GBTC) unlocks are likely to have a dampened impact on the overall market.
  • With a lack of bullish catalysts, Bitcoin volatility may remain under pressure until August.
  • GBTC discounts may persist for a long time, as trading open market GBTC shares would lead to a small change in discount.

The last batch of GBTC unlocks begin next week. Analysts do not expect it to have an impact outside of GBTC itself. There is no significant selling interest from large holders who have already had their shares unlocked, so if GBTC discount persists, they may continue to hold. 

GBTC discounts are here to stay, large holders have a long wait before the premium returns

GBTC shares went into discount in Q2 this year. The last batch is set to unlock at a time when it is profitable to hold their position and wait for a premium. Further, since the shares are discounted, interested institutions are more likely to buy GBTC in the open market, instead of subscribing to Grayscale Bitcoin Trust and keeping their holdings locked up for 6 months. 

The subscription model worked for Grayscale in the past, as a 20-30% premium following the unlocks persisted consistently. Even with this known event, there has not been any news with enough impact to push BTC out of the monthly range. Bitcoin reported the largest negative return in Q2 in 7 years, and has yet to form a break of market structure to the upside which would negatively affect GBTC premium. 

GBTC persists in a discount phase with a relatively low scope of trades at a premium. This means there may be no new subscriptions. Since interested institutions can buy GBTC in the open market, there may be no new capital inflow, which would become bullish for spot exchanges. This also means that for a higher likelihood of another Bitcoin bull cycle, either an ETF should be approved or GBTC shares should trade at a premium for institutions uninterested in DeFi to allocate capital. 

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An ETF may revive the Bitcoin bull cycle

In the current scenario, converting to an Exchange Traded Fund (ETF) structure is the most viable solution for Grayscale’s discount problem. However, that decision rests entirely with the Securities and Exchange Commission (SEC). 

The obvious flipside to an ETF would be that crypto institutions relying on risk-free arbitrage may pull out of an investment in Bitcoin altogether. The current discounts may be lucrative to institutions, but trading at a discount for months altogether defeats the purpose of arbitrage, meaning institutions will eventually exit Grayscale’s model either way. 

An ETF structure, with accessible redemptions, unlike Grayscale’s 6 month lock-in period is likely to result in the shares trading closer to par. This may revive the Bitcoin bull cycle. 

Large holders of GBTC shares are waiting on the return of premium, rather than booking losses. The premium may come back at some point and the share price may rise up to par once volatility in the market increases. Until then, large holders are likely to stay put, resisting any move to increase the selling pressure on Bitcoin. 

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