Grayscale’s bitcoin fund hits record discount amid liquidity crunch

abdelaziz Fathi

In the latest fallout from FTX’s rapid collapse last week, Grayscale Bitcoin Trust share has widened its discount relative to the underlying cryptocurrency held in the fund. Digital Currency Group’s flagship GBTC shares traded at a discount of 43% to net asset value (NAV) today, the highest margin ever since its debut in 2013.

The $6-billion Grayscale Bitcoin Trust currently offers exposure to 0.00093 BTC per share, an amount that trades for around $15.51 at time of writing. Through shares of GBTC, however, that same amount of Bitcoin trades at $8.35 at market close on November 18.

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 significantly widened its discount since its sister company Genesis Global Capital, the lending arm of the crypto investment bank Genesis Global Trading, suspended redemptions and new loan originations in the wake of FTX’s collapse. The latter is a subsidiary of Barry Silbert’s Digital Currency Group, owner of Grayscale Investments, which manages GBTC. Genesis owner Digital Currency Group (DCG) is also the parent company of CoinDesk.

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 2021, Grayscale Investments 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.

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