Grayscale Investments' Grayscale Bitcoin Trust (GBTC) has been under the heat for the last couple of weeks as it traded below the Bitcoin equivalent for each share. The musical instrument trades on over-the-counter markets and is past far the largest listed cryptocurrency asset.

Periodically, the individual-placement offerings for GBTC shares are temporarily closed, along with like products offered past Grayscale Investment such as its Ethereum trust. As of March 7, both GBTC and the Digital Large Cap Fund (GDLC) are under such periods.

The fact that one of the only investment vehicles containing Bitcoin (BTC) has temporarily closed its issuance, along with the timing of the pause, seems a bit odd, as GBTC reached a tape-high 15% disbelieve to the BTC-equivalent for each share on March 5.

Grayscale Bitcoin Trust landing page. Source: Grayscale

GBTC shares used to merchandise above the equivalent BTC held by the trust, an effect acquired by the backlog retail demand. Meanwhile, institutional clients were able to buy shares directly from Grayscale at par.

This demand instability created an arbitrage opportunity where clients could buy at par directly from Grayscale Investments, hold their shares for the half dozen-month lock-up menses, then sell them on secondary markets with a premium attached.

Grayscale Bitcoin Trust premium to BTC. Source: TradingView

This strategy yielded excellent results, as the GBTC premium over its BTC equivalent content ranged from 5% to 40%. It is worth noting that excess need on secondary markets caused this imbalance, as nonaccredited investors are unable to directly admission Grayscale's private offers.

On Feb. 27, this state of affairs inverse abruptly as the GBTC premium turned into a discount. At the time, BlockFi'due south cryptocurrency lending fly and the Iii Arrows Capital arbitrage desk-bound held over 5% of the outstanding shares, co-ordinate to disclosures required past U.Due south. Securities and Exchange Commission rules.

This means that if either 1 of the above liquidates a significant position, their movement will be made public. Regardless of who was behind the abrupt selling force per unit area, information technology's important to empathize what may have caused it.

Canada'south Bitcoin ETF presented a better product

The contempo approval of two Bitcoin exchange-traded-funds in Canada is likely one of the about pregnant contributing factors that impacted the GBTC premium. The Purpose Bitcoin ETF saw an impressive eleven,446 BTC ($584 one thousand thousand) come nether management in less than two weeks. While this sum seems insignificant adjacent to GBTC's $31.2 billion, the ETF offers a improve risk/reward, as reported by Cointelegraph.

This is because the Purpose ETF fees are 1% versus the ii% levied by GBTC. Moreover, there is no lock-upwards period, and retail investors can attain direct access to buy Purpose Bitcoin ETF shares at par. Therefore, the emergence of a better Bitcoin investment vehicle seized much of attraction that GBTC once possessed.

An increasing number of GBTC shares are being unlocked

The 36,000 BTC equivalent of GBTC shares issued in August 2020 finished its six-month lock-up in February.

Grayscale Bitcoin Trust BTC-equivalent holdings. Source: Bybt

This increase in "unlocked" GBTC represents $2 billion at the electric current $56,800 BTC cost and potentially adds pressure level to the GBTC shares. This potential affect is relevant even if nearly of the volume is closing a premium arbitrage merchandise by purchasing a BTC futures contract while selling the GBTC shares.

Even though BTC futures are liquid enough to absorb this volume, GBTC shares could see lower retail demand because of the previously discussed ETF effect — not to mention the negative sentiment that followed after BTC hitting the $58,300 top on Feb. 21, and then dropped by 26%.

Still, the fifteen% GBTC discount seen on March 5 versus its BTC equivalent does not seem sustainable. Fifty-fifty if there is currently no way for a market place maker to buy those shares and catechumen them back to BTC, Grayscale Investments could buy them back and profit from the deviation.

Every bit things currently stand, GBTC holders are non probable to panic sell during this unusual circumstance. On the other hand, those waiting for a 5% or higher premium to reemerge volition likely be disappointed, equally the Canadian ETF seems a better product for retail investors.

The views and opinions expressed here are solely those of the autho r and practice non necessarily reverberate the views of Cointelegraph. Every investment and trading motility involves risk. You should bear your ain research when making a decision.