As the price of the world’s largest cryptocurrency on Wednesday fell below $16,000 for the first since November 2020, the Grayscale Bitcoin Trust (GBTC) hit a record-low discount of 40.73% compared to the market value of the underlying asset, according to data from CoinGlass.

Designed to provide investors with an easy way to bet on the price of Bitcoin, GBTC allows investors to trade shares in trusts that hold pools of Bitcoin, with each share tracking the price of the leading cryptocurrency.

Historically, GBTC has traded at a hefty premium for most of its life, with the price of the fund’s shares rising as much as 140% higher than its net asset value.

The situation first changed in February last year after Canada and several other countries launched exchange-traded funds (ETFs) tied to the physical Bitcoin, with more ways to buy Bitcoin-like securities such as Bitcoin futures ETFs introduced later that same year.

Although the widening gap between the price of the GBTC shares and the spot price of Bitcoin may seem like an attractive opportunity to get exposure to the leading cryptocurrency at a discount, there is no way to redeem GBTC for actual Bitcoin.

This means investors are either holding bags of a depreciating asset or—depending on the time of the purchase—are forced to sell at a loss. That’s not mentioning a 2% annual management fee.

Grayscale Investments BTC Premium. Source: CoinGlass.

No Bitcoin ETF conversion in sight

The widening in the discount can also be seen as a sign of waning optimism for a conversion of GBTC into a Bitcoin ETF—a move that Grayscale has been eyeing since last year.

All attempts to launch such an ETF in the U.S. have been hampered by the Securities and Exchange Commission, which repeatedly denied or postponed any applications received, including Grayscale's.

The world's largest crypto asset manager went as far as to sue the regulator in June this year.

"The SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934," Grayscale's legal counsel Donald B. Verrilli said at the time.

Last month, Grayscale filed its opening legal brief challenging the Commission’s decision to deny the conversion of GBTC into a spot Bitcoin ETF, with the firm saying that failing to justify its “vastly different treatment” of Bitcoin futures ETFs and spot Bitcoin ETFs, the SEC has violated the most basic requirements of the Administrative Procedure Act and Exchange Act.

The latter requires that rules and regulations be applied without favoritism for one product or another.

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