Will the GBTC discount ever go away? The Grayscale Bitcoin Trust (GBTC) recently traded for a record discount of almost 30% to the underlying Bitcoin value. In this video I talk about the 3 main ways the discount could disappear.
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Links:
- GBTC discount/premium: https://ycharts.com/companies/GBTC/discount_or_premium_to_nav
- Grayscale Bitcoin Trust Details: https://grayscale.com/products/grayscale-bitcoin-trust/
https://bitcointreasuries.net/ - Grayscale files for Bitcoin Spot ETF: https://twitter.com/Grayscale/status/1450448169511313412
- Share buybacks of parent company: https://www.businesswire.com/portal/site/home/search/?searchType=all&searchTerm=Digital%20Currency%20Group%20gbtc&searchPage=1
- Latest GBTC quarterly report: https://www.sec.gov/ix?doc=/Archives/edgar/data/1588489/000156459021054757/gbtc-10q_20210930.htm
- Morningstar article: https://www.morningstar.com/articles/1068472/the-problems-with-the-worlds-biggest-bitcoin-fund
- Thinkadvisor article: https://www.thinkadvisor.com/2021/12/02/the-trouble-with-the-grayscale-bitcoin-trust-morningstar/
- Interview with Grayscale Head of ETF: https://www.etf.com/sections/bitcoin-crypto/what-lies-ahead-gbtc-grayscale
- GBTC chart private placements: https://cryptoquant.com/asset/btc/chart/fund-data/fund-holdings?symbol=gbtc&window=DAY&sma=0&ema=0&priceScale=linear&metricScale=linear&chartStyle=line
- GBTC institutional holders: https://www.nasdaq.com/market-activity/stocks/gbtc/institutional-holdings
- Mike Novogratz tweet: https://twitter.com/novogratz/status/1375773762881257481
- Purpose Bitcoin ETF (Canada): https://www.purposeinvest.com/funds/purpose-bitcoin-etf
The Grayscale Bitcoin Trust (GBTC), BTC’s largest institutional instrument, is currently trading at a discount of more than 20%. As the cryptocurrency market continues to decline in the past few days, Grayscale Bitcoin Trust (GBTC) shares have increased their discount to the underlying cryptocurrency held by the fund. The direct cryptocurrency fund has traded at a significant discount to its net asset value since February 2021, when the Scopo Bitcoin ETF launched Canada’s first Bitcoin ETF and GBTC began under the weight of the fund.
Grayscale said GBTC’s trading price “depends on market forces, the risks inherent in any publicly traded investment product,” and denied issuing too much stock. Grayscale said that “the most effective way to eliminate any difference between the GBTC share price and NAV” is to switch to a spot ETF, which is coveted by the U.S. investment community.
The GBTC leadership is sympathetic to this idea, but the SEC is slow. However, the SEC allowed several bitcoin futures ETFs to be traded, which angered Grayscale and his lawyers.
GBTC allows investors to trade trust stocks that hold large amounts of bitcoin, while bitcoin ETFs provide the opportunity to invest in funds that directly track the price of the underlying asset. Accredited investors such as hedge funds borrow bitcoin to subscribe for GBTC shares. After the lock-up period is over, investors can transfer their shares to a brokerage account in equal shares of GBTC, which they can then sell at market prices. Grayscale charges an annual management fee of 2% for GBTC, which is paid by investors during the holding period.
This was a major factor in the 2021 bull market when Grayscale bought hundreds of thousands of bitcoins on behalf of investors. Demand was backed by the premium to NAV that GBTC traded during this period, which facilitated an arbitrage operation in which hedge funds bought new shares at NAV and then sold them at market price after the lockup period expired.
