Grayscale is the leading large company in Bitcoin and crypto investing today. This company has enabled many large Wall Street companies to invest in Bitcoin and other cryptocurrencies through company shares. Behind company stocks like GBTC (Grayscale Bitcoin Trust) will be the same amount of BTC.

Who can participate?

Grayscale only provides services to accredited investors within the meaning of Rule 501 (a) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). Under this law, a person must have earned more than $ 200,000 / year in the past 2 years. Or $ 300,000 annually (within the last 2 years) for a couple or investor with net worth more than $ 1 million excluding homes, or an individual with $ 5 million in cash, etc.

In general, investors can invest in GBTC stocks that have the financial and assets endowments required by law. The minimum customer investment to purchase GBTC is $ 50,000.

This is how the GBTC fund works

Investors can buy GBTC with USD or BTC can get GBTC shares at the same price. Each GBTC corresponds to 0.00094861 bitcoin. Thereafter, the investor’s terms and conditions will be blocked for 6 months (before 2020 the terms and conditions must be blocked again within 1 year). After the blocking period has expired, investors can sell GBTC on the market.

After activation, investors can sell GBTC to other investors. However, you cannot exchange GBTC for BTC using Grayscale. As of February 2021 and earlier, the majority of GBTC shares sold at higher profits can be up to 40%, which is an attractive number for investors looking to invest in GBTC.

Effects on the crypto market

This July, a large amount of GBTC will be unlocked by Grayscale on July 17th with an equivalent of 16.24 thousand BTC. As a result, there is a lot of news on the market that raises concerns about the amount of GBTC unlocked that could push the BTC price below $ 30,000. However, this only unlocks GBTC stocks, not BTC.

Large investors often use borrowed money for for-profit investing (using other people’s money to make a profit for themselves) and risk management. So many investors can borrow BTC or USD to buy shares in GBTC. At the same time, they incorporate short selling in the market to hedge their risk if the price of BTC goes down.

With GBTC unlocked and they need to sell, when they close a short they have to buy and return the borrowed BTC to create demand for BTC. Hence, there is a BUY pressure on bitcoin, not a sell pressure, as GBTC sellers have to buy back bitcoin to cover the previous part of the transaction. Historically, there has been a lot of data showing that the price tends to go up after each GBTC unlock.

The Grayscale Premium Index is currently negative, which means that the GBTC share price is at a lower level than when buying it directly from the Grayscale company. And compared to the BTC price 6 months ago (around USD 36,000), the BTC price is now lower (around USD 34,000). If you sell unlocked GBTC at this point, you will lose up to 8% (according to Glassnode statistics), so many people believe that investors who believe in BTC’s long-term development will not sell.

With the lot of GBTC sold, the market will now be full of many institutional investors looking to buy Grayscale stock taking the advantage of buying GBTC at a discounted price. This will reduce the investor’s need to purchase GBTC directly from the Grayscale company.

In general, unlocking a large number of Grayscale GBTC shares will unlock a large number of those shares that can be traded, bought, and sold in the market. However, it does not release the corresponding amount of BTC, but can have the opposite effect and create a demand for BTC. Hence, understanding the nature of the operations will help investors feel safe with the ramifications of unlocking GBTC.