The world’s biggest bitcoin fund sinks to a record discount to underlying holdings as mania over cryptocurrency cools

The US$31.6 billion Grayscale Bitcoin Trust (GBTC) plunged 22 per cent this week, outpacing a 17 per cent decline in the world’s largest cryptocurrency. That’s evaporated GBTC’s once-massive premium to the bitcoin it holds, with the price of GBTC closing 3.8 per cent below the value of its underlying holdings on Thursday – a record discount, according to data compiled by Bloomberg.

It’s an unusual situation for GBTC, which has persistently traded at a premium to its net asset value since the fund’s launch in 2013. That figure soared to 40 per cent in late 2020, with investors willing to pay a mark-up for exposure to Bitcoin‘s dizzying rally. That avalanche of inflows swelled the number of GBTC shares outstanding to a record 692 million. However, GBTC doesn’t allow redemptions – meaning that shares can only be created, but not destroyed. With Bitcoin’s climb now stalling, that’s created a supply and demand imbalance as participants in the trust seek to find buyers in the secondary market.

“It’s more indicative of the fact that there are so many shares are available, and it indicates demand for bitcoin at these prices is falling off,” said Bloomberg Intelligence analyst James Seyffart.

Bitcoin surged to a record of over US$58,000 last weekend, but has stumbled since. The cryptocurrency slipped another 0.2 per cent on Friday, on track for its worst weekly pullback in a year. The wider Bloomberg Galaxy Crypto Index, tracking bitcoin, Ether and three other cryptocurrencies, is down 19.7 per cent this week.