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Grayscale Bitcoin Trust (GBTC), a $1.4 billion closed-end fund that invests exclusively in bitcoin, serves as perhaps the best indicator of institutional investment in bitcoin. And the data is showing an uptick in the institutional demand.
Only qualified accredited investors can invest directly in GBTC with a minimum investment of $50,000. Grayscale said that 80% of investment in 2018 came from institutional (66%) and accredited investors (14%).
GBTC gives investors an opportunity to get exposure to bitcoin through a traditional investment vehicle with shares titled in the investors’ name. Xapo holds bitcoin in cold storage vaults on behalf of Grayscale, which then charges an expense ratio of 2% that diminishes the value of the fund over time.
And it’s a lucrative business. According to The Block’s estimates, Grayscale has collected $52 million in fees from GBTC in the last three years; $14.9 million in 2017 and $27.3 million in 2018.
As bitcoin jumped to nine-month high, growing by 135% since Dec. 15, the price of GBTC has also rallied. Price of GBTC grew by 124% since early February and hit an eight-month high on Friday.
GBTC’s assets under management (AUM), in this case the value of all the bitcoins held in the fund, reached a 10-month high of $1.42 billion on Friday.
By the end of April, Grayscale held 225,638 bitcoins or just under 1.3% of the total circulating supply.
The share of total bitcoin held in Bitcoin Trust reached an all-time high in April.
Bitcoin inflows, or the amount of bitcoin added to GBTC’s holdings, reached an all-time high in April signaling an increase in institutional demand. In fact, bitcoin inflows in April (11,236 BTC) were approximately the same as in the previous four months combined.
If we adjust the bitcoin inflows to USD, nearly $58.2 million was added to Grayscale’s holdings in April, which is almost as high as $60.8 million at the height of the bull market in December 2017.
Another interesting metric is the relationship between the price of GBTC and the net asset value (NAV).
GBTC’s share price trades higher than the net asset value meaning that investors pay a premium over just buying bitcoin directly. This is because the price of GBTC is determined by supply and demand and the majority of investors prefer owning a security as opposed to ‘physical’ bitcoin.
An increase in the GBTC premium signals more demand for GBTC and therefore also a growing institutional interest. Historically, the premium has surpassed 100% in May 2017 and August 2017. The premium is currently nearly 40% and has increased consistently since December, which shows a shift of the sentiment in the market.
A similar trend can be observed by looking at the monthly traded volume of GBTC. While the volume in May is still considerably lower than in early 2018, there is a clear positive trend in the recent months.
After evaluating the data of GBTC, it’s clear that the trend has reversed in the last several months. The fund now holds 1.3% of bitcoin’s total circulating supply and added an all-time high 11,236 BTC in April. If the bitcoin inflows are adjusted to USD, nearly $58.2 million of bitcoin was added in April, which is almost as high as the $60.8 million added at the height of the bull market in December 2017. Moreover, the premium has also seen an increase in the last seven months as institutional demand increases. The same trend is seen with traded volume, which is starting to grow as well.