Grayscale’s Bitcoin Trust Premium Raised After BTC Price Dropped Below $ 35,000: What Does It Mean?

Bitcoin (BTC) is down 44% from its all-time high of $ 64,899, marking the end of its second largest bull run, which began in March 2020. Many analysts, including those from BiotechValley Insights, they see “terrible technical details” in the Bitcoin market, indicate that the flagship cryptocurrency could expand theirs current downtrend to USD 20,000.

However, Glassnode Insights, a weekly newsletter from the on-chain data analysis service Glassnode, expects Bitcoin price to recover in the coming days based on an on-chain indicator that serves as a metric to calculate institutional interest in the cryptocurrency.

Discounts are over

Nickname as “Grayscale Premium,” the metric, tracks the flow of funds to Grayscale’s Bitcoin Trust (GBTC). The largest investment vehicle for institutional investors seeking exposure to Bitcoin.

Grayscale’s Bitcoin Trust Premium Raised After BTC Price Dropped Below $ 35,000: What Does It Mean?
Grayscale’s Bitcoin Trust Premium Raised After BTC Price Dropped Below $ 35,000: What Does It Mean?

An increasing grayscale premium shows a higher inflow of BTC to Grayscale’s Bitcoin Trust. This results in the GBTC trading a premium at the spot price of BTC. In contrast, a decrease in Grayscale’s premium results in a decrease in BTC inflow, which causes GBTC to trade at a discount on bitcoin spot prices.

Grayscale’s Bitcoin Trust added more than 50,000 bitcoins to its reserves in January 2021 and the first half of February 2021. GBTC traded at a premium of between 10% and 20% during this period, indicating growing institutional interest.

Grayscale’s BTC holdings to date in 2021. Source: Glassnode

Even so, The premium fell below 10% in the first half of February. GBTC began trading discounts at spot prices. Over the same period, the BTC / USD pair’s spot rate rose from less than $ 30,000 to nearly $ 65,000 in April. By then, GBTC’s premium had fallen below zero.

On May 13th shortly before Bitcoin market crash by Elon Musk May 19 The GBTC premium hit a low of -21.23%. This showed that institutional demand for Bitcoin investment products had declined since late February.

However, the May 19 drop in prices favored Grayscale’s premium, Glassnode Insights found. The metric rose to -3.8%, suggesting that institutional interest “or at least the conviction of arbitrage traders” increased along with the decline in bitcoin spot prices.

Grayscale’s premium bounced back after GBTC traded at a discount for three months in a row. Source: Glassnode

The Canadian ETF Purpose Bitcoin had a similar discounting trend: it saw steady capital inflows and outflows through late April and early May, indicating a weakening institutional demand. Glassnode noted:

“As in the case of the GBTC, however, demand flows seem to recover significantly after the price correction, and inflows are picking up again at the end of May.”

Are you buying Bitcoin’s falling price?

The contrast between the decline in Bitcoin spot prices and the rebound in GBTC prices showed that institutions did not exit the cryptocurrency market straight away. Rather, it shows that the decline has motivated investors to get involved in both the Grayscale Bitcoin Trust and the Purpose Bitcoin ETF. Glassnode wrote:

“The GBTC and Purpose ETF institutional products are showing signs of recovery despite falling prices, which are the first signs of renewed institutional interest.”

The analytics portal also referred to metrics showing that most of the sellers of the recent BTC price drop appeared to be short-term owners. Meanwhile, long-term owners bought the falling price “with conviction”.

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