‘Safe’ Grayscale Bitcoin Trust sinks to historical lows amid crypto market contagion

Grayscale Bitcoin Trust (GBTC), since its inception, has been marketed as one of the safest forms of exposure to Bitcoin for investors. However, its recent decline established new lows for the investment vehicle, which has already been involved in a legal wrangle with the Securities and Exchange Commission (SEC) over its attempts to convert to a spot ETF (Exchange Traded Fund).

GBTC at the bottom

GBTC fell by more than 12% on November 10, bringing its value down by 84% from its highs. Consequently, the discount to Net Asset Value (NAV), which measures the amount the trust is trading below its NAV, hit 41.69%, which is the highest for GBTC since its launch. The trust has been on a consistent decline since December 2020, back when it was trading at a premium of 40.2%.

GBTC discount to NAV

The downfall has been attributed to the ongoing crypto market convulsion triggered by FTX and its sister company Alameda's collapse. The event also marked the second contagion faced by the market in less than six months. The first time such a crisis was observed was back in the second quarter, which Three Arrows Capital and Terra LUNA were responsible for.

Regardless, GBTC has been under scrutiny from investors and experts alike for a long time now, with the recent dip only fueling it further. Stock broker and CEO of Euro Pacific Capital, Peter Schiff, called out the CEO of Grayscale, Barry Silbert, for his claims of GBTC being a potential replacement for Gold as an inflation-proof investment, saying,

"Barry Silbert marketed $GBTC as a superior alternative to Gold. It wasn't even a superior alternative to Bitcoin. (sic)"

This isn't the extent of GBTC's problems, as Grayscale has locked horns with SEC for some time now. In fact, last month, as reported by FXStreet, the investment firm filed its opening briefs in its lawsuit against the regulator for the unjust rejection of its application to convert GBTC into a spot ETF (Exchange Traded Fund).

Bitcoin attempts recovery

On the other hand, Bitcoin formed new lows on November 9 after the king coin fell to $15,900 at its lowest. After a minimal recovery on November 10, BTC's market value climbed back to $17,323. Currently, the cryptocurrency is testing its critical resistance at $17,500, which needs to be flipped into support in order to initiate a recovery.

Bulls will be tested at this level as increasing buying pressure will be the only way to sustain a rise toward the earlier lower lows of $18,600. 

However, if the king coin slips again and recovery fails, it could potentially test its immediate support at $16,455. 

BTCUSD 1-day chart

This level marks BTC's lowest price in more than two years, and the breakdown from this point would set Bitcoin on a journey towards $15,000, where a failure to bounce could see BTC in a potential freefall.