Thread by @AllenAu11

The following🧵is a refresher about the Grayscale #Bitcoin Trust ($GBTC) if you want background information about this closed-end BTC fund. Enjoy!

* +ve: Positive
-ve: Negative
NAV: Net Asset Value
AUM: Assets Under Management
DCG: Digital Currency Group, Grayscale's parent

A/ $GBTC used to be the only game in town if one wants exposure to #BTC, but couldn't invest in it directly or wants to invest in a BTC proxy for their 401(k) for tax reasons or doesn't want the hassle to store their private keys. Investors can trade $GBTC at OTCQX Exchange.

B/ $GBTC is backed 100% by #BTC. Accredited investors can buy Grayscale's privately-placed $GBTC shares at NAV (value of BTC holdings/share). When that happens, Grayscale will buy BTC to back up its shares. Currently, 1 $GBTC share = 0.000935656 BTC.

C/ The AUM of $GBTC has been trending down since March 2021 because it has halted new private placements of shares & sold its #BTC to pay for expenses.

Note $GBTC cannot sell its BTC holdings other than for paying expenses.

D/ Note accredited investors have to hold their privately-placed $GBTC shares for 6 mo. before they could sell them at OTCQX.

Due to the 6 mo. lock-up period & high +ve premium ($GBTC's price> NAV), $GBTC used to offer a risk-free arbitrage trade for accredited investors.

E/ They'd buy $GBTC directly from Grayscale using cash or swap their #BTC for $GBTC. After the 6 mo. lock-up, they'd sell their $GBTC at OTCQX to capture the premium. Some borrowed #BTC to do this trade. When $GBTC's premium was +ve, it's a profitable trade for hedge funds.

F/ This has fueled the rapid growth of $GBTC despite $GBTC's very high management fee of 2%.

But this growth train stopped in its tracks when competing #BTC trust with low management fees (eg. Skybridge, Osprey, Bitwise) & Canadian ETFs became available to investors.

G/ With reduced demand, $GBTC's premium began to drop. $GBTC used to be one of the largest buyers of #BTC. But w/ demand dried up, $GBTC reduced their BTC purchase. BTC's price began to consolidate & so did $GBTC's. This viscous circle led $GBTC's premium to go -ve in Feb. 2021.

H/ When $GBTC's premium was consistently -ve, the arb trade was gone, hedge funds & investors stopped buying $GBTC.

On 3/10/2021, Grayscale halted new investments in $GBTC.

* BlockFi once partook in this arb grade to partially fund the interest to pay for its BIA account.

I/ When the unlock of massive no. of $GBTC shares occurred in May, June & July this year, investors dumped their $GBTC shares. Those who borrowed #BTC to fund their arb trade tried to suppress BTC's price so as to reduce their losses before the unlock.👇

https://twitter.com/AllenAu11/status/1400067659748626435

J/ Per bybt.com, $GBTC will have massive share unlocks in 2022. It's unclear why that is so as Grayscale has halted private placement of $GBTC shares since March 2021.👀

It will be interesting to see how this will do to sentiment of #BTC during its bear phase.

K/ Per Grayscale's 2nd Qtr 2021 10Q filings, DCG purchased $500M+ $GBTC shares from 4/1/21-5/31/21 in an effort to reduce the -ve premium of $GBTC, but in vain. DCG announced that they would purchase up to $750M of $GBTC shares on 4/30/21.

L/ Grayscale announced it would be committed to convert $GBTC to an ETF & would partner with BNY Mellon which will act as its ETF custodian. This news did help narrow the -ve premium, but the effect of this news fizzled out & $GBTC premium plunged again.

cnb.cx/3lNZmaj

M/ There's been recent news that big US banks have allowed their wealthy clients to invest in $GBTC. JPMorgan did so in July. Morgan Stanley was found to have bought 6.5M shares of $GBTC in August. But these announcements didn't flip $GBTC's -ve premium.

cnb.cx/3lnRni2

N/ With $35B AUM, $GBTC remains the choice #BTC trust for institutions that want indirect exposure to BTC. This may change when a BTC ETF is available.

Retail interest is waning due to competing & cheaper offerings & ease to get direct BTC exposure.