Markets

Why Grayscale Bitcoin Trust Surged Today

What happened

Shares of Grayscale Bitcoin Trust (OTC: GBTC) popped 12.3% on Monday, as the price of bitcoin rebounded sharply over the weekend. 

So what

Bitcoin's price climbed to more than $8,000 on Monday, up from about $7,300 at the close of the U.S. stock markets on Friday. As it typically the case with cryptocurrencies, pinpointing the exact reason for the move is difficult if not impossible.

One theory is that bitcoin's role as a hedge against geopolitical turmoil is helping to drive its price higher.  The upward move coincides with the death of Iranian General Qassem Soleimani, who was killed in a U.S. drone strike. Many investors are concerned that rising tensions between the U.S. and Iran could lead to escalating military conflict in the Middle East, destabilizing the region and global oil supplies in the process.

A miniature gold bull on top of a keyboard button labeled Bitcoin.

Image source: Getty Images.

Another theory is that bitcoin reached technical support levels near $7,000 and has since rallied off these prices. 

Both of these factors, along with many others, are likely contributing to bitcoin's recent gains at least to some extent.

Now what

The Grayscale Bitcoin Trust an imperfect proxy for the price of bitcoin. The trust is currently trading at a nearly 30% premium to the value of the underlying cryptocurrency that it holds. 

However, unless a bitcoin exchange-traded fund is approved by regulators, investors who do not wish to deal with the security and other operational challenges that come with holding actual bitcoin will probably continue to use Grayscale Bitcoin Trust as a means to gain exposure to the cryptocurrency. As such -- and despite its sizable premium to the value of its underlying Bitcoin -- the price of Grayscale Bitcoin Trust will probably continue to mimic the price movements of bitcoin in the days and weeks ahead.

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Joe Tenebruso has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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