Bitcoin: investment vehicles are quite bearish

Investment thesis

While the Grayscale Bitcoin Trust (OTC:GBTC) traded at a steep discount, some trusts and ETFs were told to reduce their Bitcoin holdings and the daily trading volume of these assets declined. steadily decreased. For a while, the Sharpe ratio shows that GBTC’s return on investment is rather low and this asset appears quite risky.

Negative Sentiment Spreads Through Stock Markets

Since November 2021, the value of Bitcoin (BTC-USD) has fallen almost 70% from the all-time high, which has many investors worried. Meanwhile, many analysts believe a big recession is looming, making market sentiment more negative than ever. The weakness in the stock markets exemplified in the S&P 500 and Nasdaq 100 indices makes this more evident, significantly affecting Bitcoin investment behavior through regulated markets.

Looking at the Grayscale Bitcoin Trust, the stock price has dropped deep to $11.94 from its peak at around $56. At the same time, 3iQ CoinShares Bitcoin ETF (BTCQ:CA) and Purpose Bitcoin Canadian ETF (BTCC.B:CA) also experienced rapid declines in their share value. Therefore, investors should seriously consider this when analyzing the markets and making investment decisions.

Dwindling interest in bitcoin investment tools regardless of huge stock market discount

In the meantime, the discount or premium to the NAV (Native Asset Value) is -32.75%, which means that the trust value in the stock market is cheaper than the underlying value of Bitcoin asset by around 32.75%. This massive discount allows institutional investors to buy Bitcoin on the exchange at a price lower than its true value.

However, GBTC’s daily trading volume fell sharply to 3.075 million, regardless of the generous stock discount. This implies that institutional investors may be pessimistic about Bitcoin-related investment vehicles in the regulated market or simply believe that the Bitcoin downturn is not over yet.

Additionally, some trusts and ETFs are phasing out their Bitcoin holdings under current market conditions. As an example, the total number of Bitcoins held by the Grayscale Bitcoin Trust has declined since its peak in February 2022. Not only that, but the total amount of BTC held by various trusts and ETFs has also fallen since May 2021 when the market has reached high.

Bitcoin Trust has poor risk-adjusted performance

In terms of return on investment, the Sharpe ratio tells us that GBTC is a mediocre asset with very low risk-adjusted performance. Indeed, the value of the Sharpe ratio has gradually decreased over time and recently fell to 0.453. This suggests that the expected return of the GBTC investment is relatively low while its volatility is quite high.

Conclusion

Current bitcoin investment tools in regulated markets such as trusts and ETFs have shown the bearish signal to some extent. Although GBTC traded at a substantial discount, daily trading volume continues to decline and some trusts and ETFs, including Grayscale Bitcoin Trust, have been encouraged to divest their Bitcoin holdings. Because GBTC shares sold or purchased by institutional investors are reported quarterly, many recent transactions may not yet be listed. However, these figures above might give us some clues as to what may really be going on with Bitcoin behind the scenes. For example, some institutional investors had bought GBTC in late June just before the July rally and retailers may not know it is a local low until after it has happened. More importantly, the Sharpe ratio indicates that GBTC’s ROI is quite low and this asset looks rather risky. Investors would therefore be ready to start hedging against Bitcoin’s growing downside risk at this point.