In Dec 2017, not long before the epic crypto market collapse, anyone willing to become a proud owner of a Bitcoin (BTC) had to plump down nearly $20,000. Those people all lost a great deal of money — however, it is not the worst deal that happened in the cryptocurrency market at that time.
Institutional investors at the time reportedly paid as much as $40,000 to purchase shares in Grayscale’s Bitcoin Investment Trust — equivalent to one Bitcoin (1 GBTC = 0.00099226 BTC) — according to Kotak Mahindra Mutual Fund’s Nilesh Shah.
Grayscale Bitcoin Investment Trust was trading at ~ 100 % premium to Net Asset Value on 18 Dec 2017 when Bitcoin touched all time high.
Imagine the plight of investor as Bitcoin is down ~ 75 % and Premium is down ~ 90 %.— Nilesh Shah (@NileshShah68) November 21, 2018
Who on earth would agree to such poor deal?
Bitcoin (BTC) and other digital assets experienced a strong rally in 2017 and many people believed that mass adoption was just around the corner. The arrival of institutional investors was supposed to provide another powerful boost to the industry and send the prices ‘to the moon.’ In this atmosphere of widespread enthusiasm, many people were eager to jump this bandwagon and capitalize on the hype.
However, regulated institutional investors were deprived of the opportunity to buy digital assets because they did not comply with the requirements of the US Securities and Exchange (SEC). Considering that at the end of 2017 there were very few eligible cryptocurrency investment options for institutions, the Bitcoin Investment Trust enjoyed the insane premium of more than 100 percent to the net asset — and institutional investors were eager to pay it to get exposure to the price action on the cryptocurrency market.
A Disastrous Opportunity
The collapse that started at the beginning of 2018 wiped over $700 billion from the cryptocurrency market, while the Bitcoin price dropped from its Dec 2017 peak within the vicinity of $20,000 to $4,500 at the time of writing.
Those hardcore hodlers who bought the coin at its maximum and kept their positions until now have been losing more than $41 a day on average ever since, which translates into a total damage of more than 87 percent — though, these losses pale in comparison with what Grayscale Bitcoin Investment Trust participants had to endure.
11/20/18 UPDATE: Holdings per share and net assets under management for our investment products
Total AUM: $1.0 billion$BTC $BCH $ETH $ETC $LTC $XRP $ZEC $ZEN pic.twitter.com/Bqur9KRImb
— Grayscale (@Grayscale) November 20, 2018
Bitcoin Investment Trust’s capitalization dropped from $1.275 billion on Nov 13 to $893 million on Wednesday, Nov 21. However, even after a crash, Grayscale trust isn’t that cheap. Investors are still overpaying for access to bitcoins. Considering that the Bitcoin Investment Trust shares closed at $5.03, its premium to net assets stands at about 10 percent.
Do you think it’s a good time to buy some bitcoins now while they are cheap? Or is it a waste of money? Let us know in the comments below!