Grayscale's Bitcoin Trust (GBTC) has been a very common ways for institutions gets get exposure to #Bitcoin without having to think about custody or owning the underlying asset. It's currently trading as a steep discount to NAV (almost -12%). What does this mean? Thread time👇
The Grayscale Trust owns bitcoins and issues shares in proportion to the bitcoins owned. The Net Asset Value (NAV) is the value of the bitcoins owned by the trust. Investors can then buy shares in the trust as a way of getting exposure to #Bitcoin's price movements
Theoretically the value of the shares should remain proportional to the the price of #Bitcoin. However, because there is no way to arbitrage the difference in Bitcoin's price with the price of GBTC, the value of the fund can drift away from its NAV
Historically the trust has traded as a large premium (as high as 132% over NAV with a median of 30% over NAV) because investors were willing to pay more to have easier access to Bitcoin's price movements. It was also an easy way to get #Bitcoin exposure in retirement accounts
So why the sudden discount? Well GBTC now has competition: MicroStrategy ($MSTR) is a new way of getting exposure to #Bitcoin (because the company owns a lot of it) and MicroStrategy does not have a 2% yearly management fee like the Grayscale Trust
Skybridge Bitcoin Fund is another example of a competing fund that gives investors exposure to #Bitcoin without buying the underlying asset (and with lower fees). Also a Bitcoin ETF has been launched in Canada.
The increasing competition, high fees, and inability to arbitrage away premiums (or discounts) to NAV means that GBTC is vulnerable in down swings in Bitcoin's price where the rush for an easy way to get Bitcoin exposure diminishes.
It is fairly unlikely that the discount to NAV for GBTC can become too deep because there is the possibility that in the near future (say 1-2 years) the Grayscale Trust becomes an ETF itself, where premiums and discounts to NAV are more easily arbitraged
Under the circumstance that GBTC becomes an ETF, those holding at a discount to its net assets would be getting a "free" 10% return vs just holding #Bitcoin itself. This possibility creates some protection for the fund.
If, on the other hand, the trust does not pursue a path to becoming an ETF and simply continues to collect 2% fees on its assets under management forever, it could potentially trade at a very steep discount to NAV.
Here is the historical premium (and recent discount) to NAV: 
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