Grayscale’s sliding BTC premium rings warning bells for buyers and traders alike. Alarm bells are not an underestimate, particularly after the premium fell to 2 percent from around 30 percent back in December 2020. What does this mean to you? Well, the premium could have been the only reason for institutions to invest in GBTC, not Bitcoin.
Peter Schiff discussed this irrational incentive and market during a recent conversation. Drawing a comparison between Bitcoin and Gamestop, Schiff outlined the red flags in Michael Saylor’s case for buying Bitcoin using cash from banks’ balance sheets. Saylor stressed this move as a protection against inflation. According to Schiff, though, if you buy Bitcoin on the wrong line of logic that the price will increase in the future, depending on future investors to create interest and purchase is just as good as purchasing Gamestop.
This is sparking the debate – what makes Bitcoin different this time around, and why buy now and not before?
The point is that Bitcoin’s market surge relies on institutional investments and digital gold narratives. The key here is that the institutional acquisition is an investment in GBTC, and the institutions are purchasing GBTC at a premium. Once the premium decreases, demand is projected to decline, and the same has happened.
What does this mean? Well, the decrease in demand indicates that there could be a delay, or worse, a halt, in the institutional purchasing of GBTC, and this also illustrates the risk of siphoning off Bitcoin demand. As expected, this could lead to a price decline. The price decline will be followed by a further drop in demand, and the course of money flows will change to meet the next best option – if not a premium, then a discount.
Much as institutions lined up for Grayscale’s premium (that was the equivalent of free money to most as the gains from growth of Bitcoin’s price is passed on to them), they should line up for discounts. Given that Grayscale was the main consumer, pooling institutional investor capital in GBTC, a decline in demand from Grayscale may be the last nail in the coffin for Bitcoin’s demand.
As of today, the price has not undergone a free fall, but it would not be incorrect to suggest that there is a possibility that there will be one in the future. A decrease in the premium may lead to a point where GBTC is being discounted, and this could be a turning point for Bitcoin. The remaining demand may shift towards GBTC, siphoning off more demand and the price of Bitcoin.
Simply put, the GBTC that supplied Bitcoin with interest and a market surge for both retailers and banks could turn against it, and with the tide turning, demand and money flows could be taken away from Bitcoin. Can this mean that GBTC will absolutely overtake BTC? That’s a difficult question to answer, but for organisations, bitcoin might be synonymous with GBTC instead of the other way round.
Such a theory poses an unpredictable outlook for the price of Bitcoin and for institutions and merchants purchasing Bitcoin at a press time price stage. However, this can only be the beginning. If GBTC premiums decline more, another story can unfold.
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