Grayscale bitcoin fund extends discount as SEC lawsuit draws to a close
The Grayscale Bitcoin Trust stock has extended its discount to the underlying cryptocurrency held in the fund. The development comes even as some crypto influencers and legal experts suggest that Grayscale now has a better chance of winning the lawsuit to overturn the SEC’s decision on its spot bitcoin ETF.
Digital Currency Group’s flagship GBTC shares are trading at a 48% discount to net asset value (NAV) today, the highest margin since its debut in 2013. The $2 billion Grayscale Bitcoin Trust currently offers exposure to 0.00093 BTC per share, an amount that trades for around $22.94 at the time of writing. However, through shares in GBTC, the same amount of Bitcoin is trading at $11.92 at the close of trading on February 21.
UPDATE: More chatter there @Graytones may be ready to win appeal/case against SEC on March 7; turn around $GBTC in a proper place #Bitcoin ETF.
**Legal minds believe that their mandate is powerful, and that the court may be inclined to push back on regulatory overreach.
— Andrew (@AP_Abacus) 20 February 2023
A Columbia court has scheduled a date to hear oral arguments in Grayscale’s appeal challenging the SEC’s decision to deny the conversion of the Grayscale Bitcoin Trust to an exchange-traded fund. While Grayscale has continued to fight the decision, both sides will present their case to the court on March 7.
A proverbial #Bitcoin example of biting off your nose to defy your own face. I will never understand this kind of toxic maximalism. On top of everything wrong with it, it’s just plain stupid. https://t.co/AYugEEtxID
— John E Deaton (@JohnEDeaton1) 21 February 2023
In June 2022, the company that runs the world’s largest bitcoin fund sued the SEC after the agency rejected a bid to turn the investment vehicle into a fund that trades on major Wall Street exchanges.
Grayscale Bitcoin Trust (GBTC), which owns 3.5 percent of the world’s bitcoin, had traded at a significant premium to NAV for much of its existence. However, it has widened the discount significantly since sister company Genesis Global Capital, the lending arm of crypto investment bank Genesis Global Trading, suspended redemptions and new loan assignments 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-in on initial investments, meaning it cannot easily add or remove shares to handle inflows and outflows. As a result, the fund’s subscribers cannot redeem their shares for a while in response to the spot price of bitcoin. Thus, the stock price tends to trade at either a premium or a discount, rather than being tied to the underlying value of the 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 is 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 the cryptocurrency markets. In other words, the margins can serve as a proxy for determining what the SEC’s decision will be. If the agency approves the conversion of the fund to a spot ETF, traders will see the rebates/premiums convert to zero.
