Grayscale Bitcoin Premium Recovers When BTC Price Falls Below $ 35,000 – What Does It Mean?


Bitcoin (BTC) has tumbled around 44% from its all-time high of $ 64,899, marking an end to its second largest bull run, which began in March 2020, signaling the Bitcoin market, noting that the flagship cryptocurrency saw its sustained decline to $ 20,000 could extend.

Still, Glassnode Insights, a weekly newsletter from on-chain data analytics service Glassnode, expects Bitcoin price to recover in upcoming sessions, based on an on-chain indicator that serves as a metric to measure institutional interest in the cryptocurrency .

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Enough with discounts

The metric, known as Grayscale Premium, tracks capital flows into the Grayscale Bitcoin Trust (GBTC) – the largest investment vehicle for institutional investors looking to get involved in the Bitcoin market.

An increasing Grayscale premium shows a higher Bitcoin inflow into Grayscale Bitcoin Trust. This causes GBTC to trade at a premium in relation to the BTC spot price. Conversely, a decreasing grayscale premium leads to a declining BTC inflow, causing GBTC to trade at a discount to the Bitcoin spot price.

The Grayscale Bitcoin Trust pulled more than 50,000 BTC into its reserves in January 2021 and the first half of February 2021. GBTC traded at a 10-20% premium during this period, indicating increasing institutional interest.

Previous BTC stocks in grayscale in 2021. Source: Glassnode

Nevertheless, the premium fell below 10% in the first half of February. GBTC began trading at discounts at spot prices. Over the same period, the BTC / USD spot rate rose from a lower $ 30,000 to nearly $ 65,000 in April. By then, the GBTC premium had fallen below zero.

On May 13, just before the Bitcoin market crash on May 19, led by Elon Musk, the GBTC premium peaked at 21.23%. It found that institutional demand for Bitcoin investment products had declined since the end of February.

But the May 19 price crash improved the grayscale premium, Glassnode Insights noted. The metric rebounded to -3.8%, suggesting that institutional interest “or arbitrage traders believe” has risen along with declining spot bitcoin prices.

Grayscale Premium recovers from GBTC 3 months in a row with a discount. Source: Glassnode

The Canadian Purpose Bitcoin ETF underwent a similar discount rate, seeing consistent capital inflows and later outflows through late April and early May as a sign of weaker institutional demand. Glassnode noted:

“Similar to GBTC, however, the demand flows seem to recover significantly after the price correction with the inflows from the end of May.”

Buy the Bitcoin Price Drop?

The contrast between lower Bitcoin spot rates and rebounding GBTC prices conveyed that the institutions have not completely abandoned the crypto market. Instead, it shows that the sell-off motivated investors to get involved in both the Grayscale Bitcoin Trust and the Canadian Purpose Bitcoin ETF. Glassnode wrote:

“The institutional products GBTC and the Purpose ETF are showing signs of recovery, although the price falls are the first signs of renewed institutional interest.”

The analytics portal also pointed to metrics that showed the majority of sellers appeared to be short-term owners in the recent BTC price drop. Meanwhile, long-term owners bought the fall in prices “with conviction”.