GBTC share is trading at 36% below bitcoin spot price
Grayscale Bitcoin Trust share has widened its discount relative to the underlying cryptocurrency held in the fund, the highest margin ever since its debut in 2013. Digital Currency Group’s flagship GBTC shares traded at a discount of 35.8% to net asset value (NAV) today.
The $13-billion Grayscale Bitcoin Trust currently offers exposure to 0.00093 BTC per share, an amount that trades for around $11.36 at time of writing. Through shares of GBTC, however, that same amount of Bitcoin trades at $17.7 at market close on September 27.
The Grayscale Bitcoin Trust (GBTC), which owns 3.5 per cent of the world’s bitcoin, had traded at a substantial premium to NAV for much of its existence. However, it has continuously traded at a discount since the emergence of the first North American bitcoin ETF in Canada in February.
In the past six months, the discounts have grown bigger and updated its all-time high it hit earlier. In the 12 months to the end of November, while Bitcoin price had recovered up to $69,000, Grayscale has been slower to catch up.
GBTC is a closed-end fund with a six-month lock-up of initial investments, which means it cannot easily add or remove shares to deal with inflows and outflows. As a result, the fund subscribers are unable for some time to redeem their shares in reaction to the spot price of bitcoin. Thus, its share price tends to trade at either a premium or a discount, rather than being tied to the underlying value of its assets.
In October, Grayscale Investments, a subsidiary of Barry Silbert’s Digital Currency Group, said it plans to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF. But the US Securities and Exchange Commission delayed decisions on Grayscale’s exchange-traded fund proposal.
The negative premium possibly a sign that things are not looking good on the spot ETF front or that buyers are no longer interested in using the vehicle to bet on a future rally in cryptocurrency markets. In other words, the margins can serve as a proxy for determining what the SEC’s decision would be. If the agency approves the conversion of the fund into a spot ETF, then traders would see the discounts/premiums convert to zero.
In June, the company running the world’s biggest bitcoin fund sued the SEC after the agency rejected a bid to turn its investment vehicle into a fund that trades on major Wall Street exchanges.
This follows the company’s move to bolster its legal team to work on the ETF application. For this purpose, Grayscale hired former United States solicitor general Donald B. Verrilli Jr., who served between 2011-2016, and a team of attorneys at law firm Davis Polk & Wardwell.