(Bloomberg) — It keeps getting worse for holders of the Grayscale Bitcoin Trust, which is now trading at a record discount to the value of the digital assets it holds.
The $35 billion fund (ticker GBTC) has lost roughly a fifth of its value since last Friday while Bitcoin tumbled from record highs. That’s helped to widen the difference between the share price and the underlying value of the Bitcoin holdings to roughly negative 19% as of Thursday’s closing prices, according to data compiled by Bloomberg.
Investors are being squeezed in part because of the structure of the trust, which doesn’t allow redemptions like most traditional exchange-traded funds. Owners of the trust must find buyers in the secondary market if they want to sell, which can exacerbate the discount with the price of Bitcoin falling. GBTC has also faced increased competition from Canada, which has approved Bitcoin ETFs while U.S. regulators continue to consider applications.
“There is definitely still a rotation out of these products because they are much less efficient — combined with others just taking off BTC exposure through GBTC, it definitely makes sense we’d be at a record discount,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial. “GBTC has never been in a situation where one, there have been readily available alternatives that dominate and two, this is the most significant sell-off in absolute terms since the massive adoption boost we’ve seen since the fall.”
Grayscale Investments has sought to blunt the widening discount by buying back shares, and said earlier this month it’s “100% committed” to converting GBTC into an ETF once the Securities and Exchange Commission approves the structure.
Michael Sonnenshein, chief executive of Grayscale Investments, reiterated the comments Friday in a statement, saying “Grayscale is committed to converting GBTC to an ETF, and we have heard from investors with long-term horizons who are purchasing GBTC right now because they view it as a buying opportunity.”
Still, that’s likely of little comfort to many of the other GBTC investors who bought the trust at a premium during the height of the Bitcoin mania.
Read more: Why a U.S. Bitcoin ETF Could Be a Real Thing in 2021: QuickTake
It is “most likely to trade at a discount until it converts to an ETF,” said Mohit Bajaj, director of ETFs for WallachBeth Capital.
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