Grayscale’s Bitcoin Trust Hits Record-Low 43% Discount After FTX Crisis

By Tim Hakki

Grayscale’s Bitcoin Trust (GBTC) hit a new record low discount to the price of Bitcoin barely a week after setting its last. As of Friday morning, the Bitcoin-tracking investment vehicle is trading at a discount of 42.69%, according to data from YCharts. 

Launched back in September 2013, GBTC is a security that gives investors a way to get passive exposure to Bitcoin without buying the asset themselves. It pools money from institutional players and uses it to buy Bitcoin, which is then held in a Grayscale fund, meaning that Grayscale holds the BTC, not investors. 

In the case of GBTC, a “discount” is not a positive. The fund is at a discount when its price to NAV (net asset value) of Bitcoin’s current price is negative, and it’s at a premium when the price to NAV is positive. 

Historically, the Grayscale Bitcoin Trust usually traded at a premium to its underlying asset, but things flipped early last year, when other alternative Bitcoin investment vehicles cropped up, notably, the Canadian Exchange-Traded Funds (ETFs) and several other Bitcoin-based instruments like Bitcoin futures ETFs introduced later that year.

GBTC’s premium to the price of Bitcoin was around 29% in January 2021 when it began falling; by mid-February it was at just 8%. The first Canadian ETFs launched on February 18 and February 19. By February 23, GBTC was trading at a discount to the price of Bitcoin, and it has only continued to decline in price since then, not helped by the 2022 brutal bear market, and exacerbated by the market damage of the past two weeks caused by the meltdown of FTX.

That ongoing crisis has also put crypto broker Genesis on liquidity watch; both Grayscale and Genesis are owned by Barry Silbert’s Digital Currency Group.

Grayscale Bitcoin Trust is still the largest Bitcoin fund of its kind. Grayscale also has trusts for Ethereum, Chainlink, and Solana, among others. 

For its part, Grayscale has been trying to convert the fund into an ETF (exchange-traded fund), a similar kind of investment vehicle that can be traded on the stock exchange and tracks the price of an underlying asset or basket of assets.

Offering a Grayscale Bitcoin ETF would enable institutional players to redeem their shares, reducing the number in circulation and slowly closing the price gap between the investment vehicle and its underlying asset. This would concurrently bring the value of the trust up. 

But all attempts to do so have been shut down by the United States Securities and Exchange Commission, which has swatted away every “spot” ETF (an ETF tied to the actual current price of Bitcoin) so far, allowing only futures ETFs (tied to bets on the future price of Bitcoin). 

In response, Grayscale sued the regulator in June this year.

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

The fight for a Bitcoin spot ETF in the U.S. continues.

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