The Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin fund, has seen its discount narrow to the lowest level since April 2021. This change comes as investors anticipate the fund’s conversion to a spot bitcoin exchange-traded fund (ETF).
As per YCharts data, the discount had fallen to as low as 5.6%, reflecting a closer alignment between the market price of the shares and the actual value of the underlying bitcoin.
GBTC, which has traded at a discount since February 2021, experienced its widest gap in December 2022, nearing a 50% discount. However, the recent positive shift in bitcoin sentiment, coupled with the expectations of an ETF approval, has gradually closed this gap. By Monday’s close, GBTC shares were priced at $39, with each share representing $41.86 in bitcoin value as of Tuesday.
The trust, which currently holds over $27 billion in assets under management (AUM), lacks an inherent market mechanism to align its share price closely with the underlying bitcoin value. This mismatch can lead to the occurrence of discounts or premiums, which traders often utilize in their strategies.
Shareholders looking to exit have to sell to other investors, a dynamic that shifted the trust from its previous premium status to a discount following a cryptocurrency market squeeze in 2021. This shift was partly attributed to institutional investors cashing in on the premium and the emergence of new bitcoin exchange-traded funds (ETFs) in Canada.
As it stands, GBTC offers one of the few avenues for U.S. stock traders to engage with bitcoin’s price movements without directly purchasing the cryptocurrency. The prevailing discount could be interpreted as a sign of diminishing interest in bitcoin among traders, while a premium might indicate a rising demand for the digital asset.
Grayscale is now in the process of seeking approval from the U.S. Securities and Exchange Commission (SEC) to upgrade the trust to an ETF, alongside 12 other applicants. In a move possibly aimed at enhancing its ETF conversion prospects, Grayscale has proposed reducing its management fee from 2% to 1.5%, as indicated in an updated S3 filing.Top of Form
The discount’s contraction also followed the U.S. Securities and Exchange Commission’s (SEC) decision not to appeal the D.C. Circuit Court of Appeals’ verdict from August. The court had set aside the SEC’s earlier decision to reject Grayscale’s attempt to convert its trust into an ETF. While it’s still possible for the SEC to deny Grayscale’s request again, the likelihood appears low, especially since the SEC has been actively engaging with other spot-ETF applications.
