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The below is from a recent edition of the Deep Dive, Bitcoin Magazine's premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

Shares of the Grayscale Bitcoin Trust hit record lows yesterday against its net asset value, trading at a 26.5% discount. Amazingly, shares of GBTC are trading below their 2017 high. 

To understand how GBTC affects the bitcoin market, you first must understand the structure of the production. Having first started in 2013, the Grayscale product allowed accredited investors and institutions to buy bitcoin exposure by accepting dollars or bitcoin for shares of GBTC at net asset value, with a six-month lock-up period.

If shares of GBTC were trading at a premium to net asset value, investors were incentivized to buy more shares of GBTC from Grayscale to capture the arbitrage. This was a large driver in the 2021 bull market, with Grayscale purchasing hundreds of thousands of bitcoin on behalf of investors.

However, once the product and its previous premium to net asset value turned into a discount, investors were stuck with a product that was no longer redeemable for bitcoin itself, which carries a 2% annual fee and can only be traded over the counter. This also happens to have been when all inflows into the trust abruptly halted, as no investor invests $100 willingly knowing what they receive in return is less, with a lock-up period.

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