Grayscale’s Bitcoin Investment Trust, a closed-end bitcoin fund, has lost nearly half of its value over the past two weeks, after falling a further 10% on Thursday amid a precipitous plunge in the value of its underlying asset.
The 48% dive in the fund so far in September comes as bitcoin has shed about a third of its value, as the digital-currency market convulses lower on a spate of negative news.
On Thursday, a single bitcoin BTCUSD, +0.74% was trading down 13% at $3,340, in the wake of a potential crackdown on exchanges by Chinese authorities. Digital currencies had already been under pressure following critical remarks about bitcoin from Wall Street heavyweights like J.P. Morgan Chase & Co. JPM, -0.20% CEO Jamie Dimon, who described bitcoin as a “fraud.” at a conference on Tuesday
GBTC
GBTC, -8.41% has been trading at a steep premium to its net asset value. At the beginning of the month, the fund traded at more than $1,000, a roughly 130% premium to its net asset value. As of Thursday, GBTC’s NAV was at about $311, but the price investors paid for the fund was $518, a 60% premium, according to FactSet.
“I think the biggest driver of the decline in GBTC is the plunge in bitcoin prices, but some of it also has to do with a lot of people shorting the fund, which has caused the premium to come down,” said Sumit Roy, analyst at ETF.com. Shorting refers to traders betting that its price will fall.
Despite the 50% plunge, GBTC is up 320% since the start of the year.
The stark discrepancy between the GBTC price and its underlying value has caught the attention of famed investor Andrew Left, who is betting against the security, calling it the most dangerous way to own bitcoin.
GBTC is currently the only product bitcoin bears can use for shorting the digital currency.
On Thursday, Left told MarketWatch that he expects more pain ahead for GBTC as rival funds, touting links to bitcoin, emerge. “The premium will fall eventually when alternative products are offered,” he said via email.
Roy doesn’t expect this premium to fall to zero until the launch of a bitcoin exchange-traded fund is imminent. The Securities and Exchange Commission has rejected a few such proposals to change existing rules that would allow listing of bitcoin ETFs, including the one proposed by Winklevoss twins.