Institutions rushing into $19K Bitcoin as GBTC premium hits 6-month high

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The demand for the Grayscale Bitcoin Trust (GBTC) continues to rise with its premium surpassing 30% on Dec. 3. This indicates that Bitcoin (BTC) is seeing increasing institutional demand as its price consolidates above $19,000.

The Grayscale Bitcoin Trust is an institutional vehicle that is tradable in the United States through OTC markets. Accredited and institutional investors typically use the trust to obtain exposure to BTC with their brokerage accounts.

Why is the Grayscale Bitcoin Trust premium rising?

The Grayscale Bitcoin Trust is the go-to institutional vehicle in the U.S. for BTC due to the lack of a Bitcoin exchange-traded fund (ETF).

Other markets, like Canada, have a Bitcoin ETF that investors can use to gain exposure to BTC. Without an ETF, institutions in the U.S. turn to alternative vehicles, like the Grayscale Bitcoin Trust, to invest in BTC.

Each share of the trust represents 0.00095346 BTC. Hence, buying one share of the Grayscale Bitcoin Trust is like buying 0.095% of one Bitcoin.

GBTC Discount or Premium to NAV. Source: Ycharts

As of Dec. 3, GBTC is trading at $23.39 while across retail and spot markets, Bitcoin is trading at around $19,250, which makes 0.095% of BTC worth around $17.33. This means that GBTC is roughly 35% more expensive than buying Bitcoin at the current market price.

On Dec. 3, the price of Bitcoin increased from $19,000 to $19,250 after the U.S. market closed. When that difference is deducted, the current premium of GBTC is around 25% to 30%. Notably, this is the highest level since June when the BTC market price was around $9,600 prior to rallying higher.

Grayscale itself does not charge the premium, however. The market prices in the premium as it trades in a public market in the U.S. When the premium rises, it signifies that more institutions and accredited investors are accumulating BTC via GBTC.

Although the current premium is rising, it is still relatively low compared to 2017. This suggests that the rally of Bitcoin still has a lot more room to run. When GBTC’s premium increases, it typically signified a bullish trend and an overall increase in investor appetite for BTC.

Consequently, the number of Bitcoin owned by Grayscale has increased substantially in recent months. Currently, Grayscale owns $10.19 billion in BTC, according to its latest report. What’s more, Grayscale bought twice as much Bitcoin than was mined in November.

Institutions are propelling BTC’s rally

Atop the continuous increase in demand for Bitcoin on Grayscale, Travis Kling, a fund manager at Ikigai, found similarities between BTC’s past intraday price spikes and the entrance of new institutions.

The price chart of Bitcoin with institutional news. Source: Travis Kling

Kling cited a chart that marked when major institutions, such as JPMorgan, Citibank, Blackrock and Guggenheim spoke positively about BTC, which was seemingly followed by more upside for BTC price. On Dec. 1, he said:

“I call this chart ‘The Traditional Onslaught’. We’ve been talking about ‘The Herd’ for 3+ years. The Herd requires career risk cover. This is that. They are by definition not early adopters, but their pockets are deep & their capital is sticky. #Bitcoin is just getting started.”

Unlike previous bull cycles, institutions are now more actively involved in the current Bitcoin rally. The clash between institutions accumulating BTC and whales selling might have furthered fueled the extreme volatility in the market.