Demand for Grayscale Bitcoin Trust (GBTC) continues to rise and the premium was over 30% on December 3rd. This indicates that Bitcoin (BTC) is seeing increased institutional demand as its price consolidates above $ 19,000.
Grayscale Bitcoin Trust is an institutional instrument that is traded in the US through OTC markets. Institutional and accredited investors often use the trust to get exposure to BTC with their brokerage accounts.
Why is the Grayscale Bitcoin Trust premium increasing?
The grayscale bitcoin trust is the institutional reference tool for BTC in the US due to the lack of an exchange traded bitcoin fund (ETF).
Other markets like Canada, They have a Bitcoin ETF that investors can use to get exposure to BTC. Without an ETF, institutions in the US are turning to alternative vehicles like the Grayscale Bitcoin Trust to invest in BTC.
Each share in the trust represents 0.00095346 BTC. Therefore, buying a stake in Grayscale Bitcoin Trust is equivalent to buying 0.095% of a bitcoin.
From December 3rd GBTC is trading at $ 23.39 while Bitcoin is trading at around $ 19,250 in the retail and spot markets, which is 0.095% of BTC valued at around $ 17.33. This means that GBTC is about 35% more expensive than buying Bitcoin at the current market price.
On December 3, the price of Bitcoin rose from $ 19,000 to $ 19,250 after the US market closed. When that difference is subtracted, the current GBTC premium is around 25% to 30%. In particular, this is its highest level since June when the market price of BTC was around $ 9,600 before the surge.
But still, Grayscale itself does not calculate the premium. The market bets on the premium when trading in a US public market. If the premium increases, it means that more institutions and accredited investors are accumulating BTC through GBTC.
While the current premium is increasing, it is still relatively low compared to 2017. This suggests that Bitcoin’s rally has much more leeway to execute. When the GBTC premium rises, it usually means an uptrend and an overall increase in investor appetite for BTC.
As a result, the amount of Bitcoin owned by Grayscale has increased significantly in recent months. Grayscale currently owns $ 10.19 billion in BTC report. Plus, Grayscale bought twice as much bitcoin as it mined in November.
.@Grayscale Bitcoin Trust was bought almost twice in total #BTC dismantled in November 2020. $ BTC #BTC pic.twitter.com/GFJTwPR9Mk
– Coin98 Analytics (@ Coin98Analytics) 3rd December 2020
Institutions are driving the BTC rally forward
In addition to the continued surge in demand for Bitcoin at Grayscale Travis Kling, fund manager at Ikigai, found similarities between BTC’s past intraday price spikes and the entry of new institutions.
Kling cited a chart that marked when major institutions like JPMorgan, Citibank, Blackrock and Guggenheim spoke positively about BTC, which apparently was followed by a further rise in BTC price. December 1st said::
“I call this graphic ‘The Traditional Attack’. We have been talking about ‘the herd’ for over 3 years. The herd requires professional risk coverage. That is it. By definition they are not early adopters, but their pockets are deep and their capital is sticky. #Bitcoin is just getting started. “
Unlike previous bull cycles Institutions are now more actively involved in the current Bitcoin rally. The conflict between the institutions that accumulate BTC and the sale of whales could have exacerbated the extreme volatility of the market.
In the last days Bitcoin saw sharp price fluctuations within hours after being rejected for $ 20,000. This has also resulted in analysts having mixed opinions about where BTC is headed, as Cointelegraph previously reported.
At the same time, several indicators suggest that Bitcoin is on the verge of cracking $ 20,000 sooner rather than later.