The Bitcoin Ghost Town
Looking across bitcoin financial products, it’s hard to see much institutional demand at these prices. Everyone seems to be waiting for the next big breakout or breakdown move before allocating again.
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The Lack Of Institutional Demand
Previously, we’ve highlighted the importance of the Grayscale Bitcoin Trust’s (GBTC) role in the 2020-2021 bull market run as investors piled in for high-yield arbitrage opportunities and an institutional vehicle to acquire bitcoin. To read a more in-depth summary on the rise of GBTC, read our January 2022 Monthly Report.
As those yield opportunities were pushed to their limits and out of the market, the demand and volume for GBTC has dissipated over the last year. Despite a current implied-discount bitcoin price of $11,891 today, where is the institutional buying demand in the market? It’s been a bit of a ghost town for GBTC volume showing how many previous tourists, speculators and risk-off allocators have left the building.
In the aforementioned monthly report, we highlighted the following:
“The reason we are highlighting this dynamic nearly a year later is that the recent performance of GBTC is highly indicative of the market conditions bitcoin finds itself in today. As the discount to NAV bled from -10% in late November to as low as -30%, GBTC and its approximately 646,000 bitcoin held in the trust began to weigh heavily on the market.
We can assume with a high degree of certainty that the same macro allocators who were indiscriminately dumping tech exposure, were also market selling shares of GBTC. Although no bitcoin can be released from the trust (aside from the automated 2% fee rolloff), the greater the discount to NAV that GBTC trades with, the more spot demand the product siphons from bitcoin itself.
For the time being, shares of GBTC look to present an attractive opportunity to buy bitcoin at a large discount for institutional investors or for exposure in traditional retirement accounts. It should be noted that shares of GBTC do not have the native properties that bitcoin itself carries (i.e., sovereign ownership, censorship resistance, global liquidity).
One should expect the GBTC discount to approach closer to NAV before significant price appreciation in bitcoin (the asset itself), due to the incentive the discount places to allocate to GBTC.”
Bonus content: Head of Market Research Dylan LeClair hosted “The Euro & Bitcoin” panel with guests Marc Friedrich, Marc van der Chijs, and Alfonso Peccatiello at Bitcoin Amsterdam.
Even with those upside incentives, the GBTC discount has only fallen further to a peak discount of 39.76% just a few weeks ago.
The below chart shows the GBTC’s daily volume well below the product’s average in the second pane in gray. Today’s volume is only 38% of the historic average and around 6.8% of the GBTC daily volume at peak. The third pane shows a colored version of the 30-day moving average volume where dark blue is the highest period of activity and dark red is the lowest period of activity. Currently, we’ve been in one of the lowest volume and activity periods — dark red — since late August.
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