grayscale

Grayscale's Bitcoin Trust, a US-based investment fund focused on the cryptocurrency market, has reportedly hit a record discount due to declining investor interest in Bitcoin. The latest assets report shows that a share of the trust was trading at around $100 below its net asset value, even as the cryptocurrency market itself surged by almost 30%.

A little explanation on how the price of GBTC is determined: GBTC is a closed-end fund that cannot easily add or remove shares to accommodate inflows and outflows. As a result, its share price is determined by supply and demand, rather than by the underlying value of its assets. Why then, do people buy GBTC? I believe they are betting on Bitcoin's future success. In addition, they are not paying a premium to buy the fund because there isn't a large initial investment requirement to purchase GBTC. You can buy as little as one share ($198 as of this writing), making it much easier for investors to get into the bitcoin action.

GBTC has a current share price of $45.14, with a return of 72.2% over the past year. It's safe to say that GBTC investors have benefited significantly from the explosion in bitcoin's price over the past year, even though much of the increase--the surge that occurred between October 2016 and June 2017--occurred after GBTC had stopped trading. As we can see from this experiment, it would not have been difficult for a locked-in investor to realize a massive return, even if he didn't actually buy his shares at the highest possible price.