Bitcoin has been in massive rally mode for pretty much of all 2019, but the pace of gains has really accelerated in the last several days. While the price briefly topped $11,000 earlier, prices have pulled back slightly to just under that level now. Even with the pullback from earlier highs, though. year to date, bitcoin is up just about 200%, while in the month of June, the gain has already been just under 30%.
As prices have started to run up in recent days, retail enthusiasm for bitcoin has predictably increased. Because acquiring bitcoin isn’t nearly as simple of a process as buying traditional stocks, bonds, or other currencies, for many investors it simply isn’t worth the bother. One easier (and much more expensive) way to gain exposure to bitcoin, though, is through the Grayscale Bitcoin Trust (GBTC) which is the only ETF-like security that tracks the price of bitcoin. One major drawback to GBTC is that it is a very expensive way to trade bitcoin. Not only does the Trust charge a 2% annual fee, but it also traditionally trades at a massive premium to the actual value of the bitcoin held in the trust. Over the last year, for example, GBTC has traded at an average premium to NAV of 27%. That means that if you liquidated the Trust, the value of the assets would be worth considerably less than the price that the trust is trading at.
Because of the management fee and the fact that the trust trades at such a premium to NAV, it’s widely assumed that most of the buyers and sellers of GBTC are more retail-oriented as opposed to serious bitcoin investors. Therefore, when the premium to NAV is relatively low, it indicates that so-called retail interest in bitcoin is low, while higher premiums represent retail interest on the rise. With that in mind, a look at the recent trend in the trust’s premium to NAV suggests that retail investors have been increasingly warming up to bitcoin as prices rise. At the current level of 42%, GBTC’s premium is the highest since last August. While that’s a ten-month high, the premium was consistently higher in the first half of last year, and back when the retail frenzy over bitcoin was at its peak in early 2018, the premium topped 80%. Sentiment on the part of retail investors has been on the rise, but they aren’t quite yet going ga-ga for bitcoin. Start a two-week free trial to Bespoke Institutional to access our interactive tools and much more.