Grayscale's 33% GBTC Premium Signals “Outrageous” Institutional Demand For Bitcoin, says Willy Woo
Grayscale Bitcoin Trust's (GBTC) premium on Bitcoin has risen to 33%, indicating “outrageous demand” for Bitcoin from institutional investors as the Bitcoin price consolidates below $23,000.
As the Bitcoin price rallied yesterday, the premium on GBTC shares rose to over 33%, drawing the criticism of Bitcoin critic Peter Schiff on Twitter, while on-chain analyst Willy Woo celebrated Bitcoin’s growing institutional demand.
CEO and chief global strategist of Euro Pacific Capital Inc, Peter Schiff has long been critical of Grayscale’s GBTC and the investment firm’s advertisements on CNBC. As Bitcoin surged he tweeted:
“CNBC viewers are now paying a 33% premium for the privilege of paying GBTC a 2% per year fee to store Bitcoin that they could easily store themselves for free. GBTC then creates new shares which it sells into the market at a huge premium, using the proceeds to buy more #Bitcoin.”
Woo, who goes under the Twitter handle Woonomic, could not have been more thrilled with the bullish institutional sentiment for Bitcoin and threw a jab at Schiff for his relentless diatribe on legacy safe-haven asset gold.
“Wow 33% GBTC premium, that's outrageous demand for #Bitcoin via retirement IRA […] If I was a Euro Pacific shareholder I'd be wondering why the company is not getting in on that obvious growth business. Like Kodak revolutionised photos until one day it didn't run towards digital.”
GBTC demand is rising as it allows institutional exposure to Bitcoin which is held in custody and also allows investment strategies to not have to deal with the complications of crypto taxation.
As one of Woo’s followers posted in the thread:
“I’m surprised premium is only 33%. Roth IRA exposure to bitcoin and one does not need concern about tax.... so right around 30% seems correct to me. I can see premium getting to 100% for GBTC as retirement accts try to purchase GBTC shares and are not immediately filled."
To clarify, the premium placed on Bitcoin is not applied by Grayscale itself but is priced in by the United States public market where GBTC shares trade.
Each share from GBTC represents 0.00095085 BTC or roughly 0.095%. At the time of writing on Dec. 18, GBTC is trading at $28.25 across retail and spot markets. Following its historic rally, Bitcoin is trading at around $23,105, which makes 0.095% of 1 BTC worth around $22. This means that GBTC is roughly 33% more expensive than buying Bitcoin and storing it yourself.
While Willy Woo is correct that when the premium rises, it signals that more institutions and accredited investors are accumulating BTC via GBTC, and is obviously a bullish indicator of market sentiment—Schiff’s concerns are not without substance.
Currently Grayscale is holding $12.9 billion in Bitcoin up from just over $10 billion at the start of December. As Schiff tweeted, GBTC creates these shares which are sold to the market at a huge premium and reinvested to buy more Bitcoin.
Should the Bitcoin price plunge, GBTC’s investment strategy could have dangerous consequences for the overall market. Should the value of Bitcoin price drop investors may exercise their put options and create a situation in which the failure of the Grayscale Bitcoin Trust, could cause cascading effects into other financial networks and create serious issues for the BTC price.
A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time. For this right, GBTC investors pay a premium.
Schiff also suggested that Grayscale’s premiums were far too high just for custody services. He tweeted:
“That's what hedge funds charge to manage money. The fees to merely custody an asset are normally around 20 basis point, 1/10 of what GBTC charges.”
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