Home Financial Record Grayscale BTC Trust is trading at a record discount of 36.7%, but is it justified?

Grayscale BTC Trust is trading at a record discount of 36.7%, but is it justified?


U.S. Investors Await Bitcoin Exchange-Traded Fund (ETF) Approval Since May 2014 when the Winklevoss Bitcoin Trust filed an amendment request with the Securities and Exchange (SEC).

Over the years, the SEC has rejected every applicant, and the latest rejection was issued at WisdomTree’s request for a spot Bitcoin ETF on October 11. The SEC concluded that the offering lacked the ability “to obtain the information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of foreign exchange rules and federal laws and regulations. applicable to securities.

Bitcoin investment trust vehicles have been around since 2013, but they are restricted to accredited investors. Launching a spot BTC ETF would open the market to retail investors and a wider range of mutual funds in the industry.

At the moment, US regulators are reluctant to release what many believe is a fairer and more transparent product for Bitcoin. A conflicting reality is that while BTC spot ETFs continue to be rejected, the same product has long been available for bonds, global currencies, gold, Chinese stocks, real estate, oil and gas. ‘silver.

The Grayscale Bitcoin Trust Fund (GBTC), a US$12.3 billion investment fund, is currently trading at a record 36.7% discount to its Bitcoin holdings, but this may not be the case. – not be of a purchase type discount. The gap started after the Toronto Stock Exchange launched the Purpose Bitcoin ETF in February 2021, which is a cash investment product.

What is an Exchange Traded Fund?

An ETF is a type of security that holds diversified underlying investments, including commodities, stocks or bonds. The ETF might look like a mutual fund because it is pooled and managed by its issuer.

SPY, the ETF that tracks the S&P 500 index, is the most recognizable example of the instrument. The mutual fund is currently managed by State Street and has $328 billion in assets under management.

More exotic structures are also available, such as the ProShares UltraShort Bloomberg Crude Oil (SCO). This fund uses derivatives and aims to offer twice the daily short leverage on oil prices, meaning that investors are effectively betting on falling oil prices.

Buying an ETF gives the investor direct ownership of its contents, creating different tax events compared to holding futures contracts and leveraged positions.

Trust funds, like GBTC, do not offer redemption or conversion rights

Investment trust funds are not under the authority of the SEC and are in fact regulated by the United States Office of the Comptroller of the Currency.

Grayscale’s GBTC is the absolute leader in the cryptocurrency market, even though it was structured as a business, at least in regulatory form. The investment trust is considered a closed-end fund, which means the number of shares available is limited.

Therefore, GBTC shares are not freely created and do not offer a buyback program. This inefficiency creates significant price deviations from the fund’s underlying bitcoin holdings. In contrast, an ETF allows the market maker to create and redeem shares, ensuring that the premium or discount is minimal most of the time.

For example, Purpose Bitcoin ETF (BTCC.U) held a net asset value of $3.59 per share on October 13, and shares closed at $3.60 on the Toronto Stock Exchange. Similarly, the underlying price of US derivatives ProShares Bitcoin Strategy ETF (BITO) was $11.94 on October 13, while its shares were trading at $11.95.

Related: Grayscale Launches First Salvo in Case Against SEC Over Bitcoin ETF Denial

Grayscale battles SEC, but results could take years

In June 2022, asset manager Grayscale filed a lawsuit with the SEC regarding the conversion of GBTC to a spot Bitcoin ETF. The firm has been awaiting a final decision from the regulator since filing its application in October 2021.

Grayscale’s senior legal strategist said the SEC’s rejection was “arbitrary” by “not applying consistent treatment to similar investment vehicles.” As a result, the asset manager filed a lawsuit based on the SEC’s alleged violation of the Administrative Procedure Act and the Securities Exchange Act.

It should be noted that eight and a half years have passed since the submission of the first Bitcoin spot ETF ledger application. Currently, GBTC charges a flat 2% annual administration fee, so the 36.7% discount might be justified given that the SEC continues to reject appeals and requests from every fund manager. .

Essentially, the investment trust product is far less optimal than an ETF, and so far Grayscale has done little to minimize the impact on GBTC holders.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.