The price of Bitcoin is really influenced by Grayscale’s GBTC premium?

Recently, the Bitcoin Grayscale Trust Fund (GBTC) net asset value (NAV) premium reached its lowest level since November 2018. This premium shows that traders are paying more for GBTC shares than the underlying amount of Bitcoin (BTC) held by the fund.

This difference is mainly due to the inability of retail investors to buy shares directly from Grayscale Investments, whose funds are intended for accredited investors only.

Currently, GBTC is the largest crypto-listed fund with USD 3.5 billion in assets under management, with a total of more than 386,000 BTCs in custody. It is therefore considered a relevant indicator of investor appetite.

The recent declines in this premium raised some eyebrows among analysts and cryptomoney experts who claimed that it could indicate the beginning of a significant movement, according to similar moments in the past.

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What’s behind the GBTC premium?

In the last two years, there have been four cases where the GBTC premium marked a local floor and recovered. As shown above, premium increases marked short-term upturns in three of the four cases.

The only exception was the notable November 2018 collapse that occurred after Bitcoin lost its old USD 6,000 support. July 16 marked the lowest levels in twenty months, and now the premium seems to be returning to 9%.

To correctly assess whether the current moment resembles the past negative outcome, it is necessary to analyze investor sentiment at that time. One of the best trading metrics is the futures premium (contango) and market volume.

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The futures markets show some similarities
Contango measures the premium of longer term futures contracts and provides a reliable indicator of investor expectations.

Generally, there is a premium of 0.5% to 1.5% on 3-month contracts in healthy markets, indicating a normal range. When this indicator becomes negative, known as backwardation, it is a sign of a downward trend.

The premium for the 3-month futures contract is a modest 1% at the current Bitcoin Up price, similar to the level found in November 2018. Although not a bearish level, this contango does not show any excessive optimism on the part of professional traders.