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Many investors are concerned as Bitcoin’s value has fallen by about 70% since its peak in November 2021. Meanwhile, market sentiment is at an all-time low due to analyst expectations of a major recession. This is especially evident from the decline in stock markets as measured by the S&P 500 and Nasdaq 100 indices, which is having a major impact on how people invest in BTC on regulated markets.
Bitcoin investment vehicles have taken a beating
Looking at the Grayscale Bitcoin Trust, the share price has fallen significantly from its peak of around $56 to $11.94. At the same time, the share values of 3iQ CoinShares Bitcoin ETF and Purpose Bitcoin Canadian ETF both fell sharply.
The Grayscale Bitcoin Trust (GBTC) has fallen deeply to $11.94 since its peak. Source: TradingView
Despite the stock’s significant discount, GBTC’s daily trading volume has plummeted to 3,075 million. It suggests that institutional investors may be skeptical of Bitcoin-related financial products in the regulated market or simply think the bear market is not over yet.
The daily trading volume of GBTC has sharply dropped to 3.075M despite the generous discount of the shares. Source: YCharts
In addition, given current market conditions, certain trusts and ETFs are gradually selling their holdings. For example, since its peak in February 2022, the total amount of BTC held by the Grayscale Bitcoin Trust has declined. In addition, since the market peaked in May 2021, the total number of Bitcoins held by various trusts and ETFs has declined sharply.
The Sharpe ratio indicates that GBTC is a poor asset with very low risk-adjusted performance in terms of return on investment. In fact, the Sharpe ratio recently dropped to 0.453 after declining over time. It implies that while the volatility of GBTC is quite high, the expected return on investment is rather modest.
Loss after loss
Current pioneer crypto investment vehicles in regulated markets, including trusts and ETFs, have shown the pessimistic signal to some extent. Despite the significant discount at which GBTC has been sold, daily trading volume is steadily declining, and several trusts and ETFs, such as Grayscale Bitcoin Trust, have been urged to sell their BTC holdings.
The total number of BTC held by trusts & ETFs has plummeted since May 2021. Source: CryptoQuant
The current Bitcoin investment instruments in regulated markets such as trusts and ETFs have shown the bearish signal to some extent. Although GBTC has traded at a significant loss, daily trading volume continues to decline and some trusts and ETFs, including Grayscale Bitcoin Trust, have been encouraged to divest their Bitcoin holdings.
Sharpe ratio tells us that GBTC is a poor asset with a very low risk-adjusted performance. Source: YCharts
Because the shares of GBTC sold or bought by institutional investors are reported on a quarterly basis, many recent trades may not yet be listed. However, these numbers above can give us some clues as to what may be happening behind the scenes with Bitcoin.
Retailers can only know that a local bottom has been reached after it has already occurred, as in the case of institutional investors who bought GBTC in late June just before the July surge.
Most notably, the Sharpe ratio shows that GBTC’s return on investment is quite low and these assets seem quite risky. Therefore, at this point, investors would be ready to hedge against bitcoin’s rising negative downside risk.
Featured image from Unsplash, charts from TradingView.com, Ycharts, and Cryptoquant