The only U.S. Bitcoin investment trust, GBTC, has dropped to its lowest levels of the year — down 10% last week alone. Bitcoin’s current price certainly has an effect, but these levels are more-so a response to a combination of other factors: high fees associated with the fund, investor attraction from GBTC competitors, and regulatory uncertainty surrounding upcoming decisions from U.S. authorities on Bitcoin exchange-traded funds (ETFs).
Grayscale Bitcoin Investment Trust
The Grayscale Bitcoin Investment Trust, or GBTC, which tracks Bitcoin’s market price, has seen its net asset value hit its lowest point, down nearly 80% from a high of almost $40.00 following Bitcoin’s price surge to almost $20,000 late last year. At the time of writing, GBTC is trading at $7.40. In early January the fund was trading at almost $25.00.
Some investors correlate GBTC’s downward trend with its expensive fees, as the trust charges $20.00, or 2%, for every $1,000 invested. By comparison, the average equity mutual fund expense ratio was around 0.59% last year according to the Investment Company Institute. “Expense ratios are insane for these funds and the current Bitcoin price is creating more problems,” Naeem Aslam, the London-based chief market analyst at TF Global Markets U.K. Ltd., told Bloomberg.
GBTC’s market is important because it is the closest that investors have to an ETF right now, purchasing the cryptocurrency indirectly through Grayscale at a premium. The main advantage when compared to the crypto market itself is that the structure and operation of GBTC is more traditional, so long-time investors are more likely to use it. In relation, Grayscale’s fund attracts interest from those investors that do not understand the crypto market well enough to participate in it directly.
GBTC also has the support of trusted Bitcoin wallet provider Xapo, with all its Bitcoin being stored in Xapo’s cold storage vaults, which are located in mountainsides and decommissioned military bunkers across five continents. This ensures that both the company and its client’s funds are properly stored and protected.
Blame on GBTC, Not Bitcoin
After the news of GBTC’s price drop, Tyler Jenks, President of Lucid Investment, said in a Tweet that the decline in the premium was caused by two major factors: an interest and concern regarding the future of Bitcoin ETFs, and/or the idea that Bitcoin’s price will continue to drop further.
Moving forward, the biggest question is are market participants losing interested in Bitcoin or in GBTC specifically? It likely leans more towards the latter, especially considering that GBTC is facing some stiff competition.
As reported by NewsBTC, just last week a group of executives at the largest commercial bank in Switzerland, UBS, raised $104 million to launch the first fully licensed cryptocurrency bank by obtaining a license from Finma, the Swiss financial authority.
UBS aside, there are other alternatives like Seba — as well as crypto service providers like Bakktand Coinbase Custody — that offer the same merit as GBTC for clients who want to invest in digital currencies.
“Our vision is when you log in into your online banking, you’d have access to crypto and fiat within one account,” Seba’s Chief Executive Officer Guido Buehler said.
And there’s others too, like XBT Provider, an exchange-traded note (ETN) which some investors have said takes away from the relevance, and therefore value, of GBTC in the cryptocurrency market.
In conclusion, the 10% drop in GBTC registered last week was not in direct relation to Bitcoin’s recent price slump, but instead, due to uncertainty surrounding the regulatory landscape of the growing industry and an increasing number of company’s beginning to offer cryptocurrency-related services.