Grayscale’s Crypto Fund Attracts Capital Despite Underperformance

Capital continues to pour into the flagship Grayscale trust as its chances to receive approval to become an exchange-traded fund later this year look promising.

The trust has attracted investments globally as the world faced consecutive shocks in the past few months. One of these shocks includes the dramatic selloff in technology stocks, which was then followed by Russia’s invasion of the Ukraine which left many fund managers with double-digit losses. This resulted in the GBTC fund underperforming.

Funds such as the ARK Next Generation ETF and the Morgan Stanley Insight Fund both experienced negative year-over-year performances due to their high exposure in the Grayscale Bitcoin Trust. Nevertheless, neither of the funds reported selling significant shares of GBTC.

Many factors played a role in GBTC’s underperformance, including the growing level of competition from exchange-traded funds in Canada. Unlike GBTC, ETFs allow investors for Share Redemptions, which is a process through which a fund can destroy shares based on supply and demand dynamics.

Grayscale’s parent company, Digital Currency Group, has attempted to reduce the discount by buying back GBTC shares. However, their efforts have been proven fruitless following the launch of ProShares Bitcoin Strategy ETF, which holds futures contracts. This ended up pushing GBTC’s price further away from Bitcoin’s spot price.

Nevertheless, institutional investors return to accumulate shares in the Grayscale Bitcoin Trust (GBTC) as the discount to spot price has increased by nearly 30%, according to data from Glassnode.

Ever since December 2021, weekly sessions have shown investors investing between $10 million and $120 million into Grayscale’s flagship fund. The biggest inflow of capital, which neared $140 million, occurred in the last week of February this year.