GBTC’s near $11 billion assets under management pose a risk in the bear market: UBS

Your size is not Grayscale’s size

Grayscale’s size can be extremely problematic in a bear market, Kachkovski said. 

Any sale would widen the GBTC discount further but not necessarily affect the bitcoin price. However, if GBTC itself were liquidated, it could affect bitcoin — since fund rules stipulate investors must be paid out in cash. 

“We believe the sheer size of GBTC’s holdings—633k BTC, or 3.3% of all coins mined— would spell trouble for the entire market, as bitcoin still comprises more than 45% of the space, excluding stablecoins,” the report read, while stressing that it still believes a liquidation remains unlikely. 

That’s because DCG nets $210 million from GBTC management fees. Crucially, the fee is levied irrespective of performance or discount to NAV. The fund’s other products, including ETHE, bring in a further $100 million per annum.

Hang in there

UBS also notes that language in SEC filings does not suggest that a shareholder vote could force the trust’s dissolution. “Otherwise, Grayscale only has to remain liquid and solvent to keep running the fund.”

The investment bank’s final point against liquidation states that, while profitable, realizing the discount — by receiving the underlying bitcoin — would bring in circa $440 million at best.

That would be just a little more than two years of recurring annual income from the trust’s management fees. It would also assume all bitcoin were sold at the current price, around $17,000, which Kachkovski says seems unlikely.

While investors should be concerned about these outcomes, Kachkovski said there’s no need to panic — yet.