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Tuesday, December 6, 2022

Grayscale Bitcoin Trust Has Hit A Record -35% Discount

Grayscale Bitcoin Trust- a Bitcoin fund that currently stores around 3.12% of the total supply of the cryptocurrency- or around 640,000 BTC- has been trading at a discount that is an all-time record when compared to the value that the underlying assets bring with it. On the 23rd of September, the closed-end trust, which has a value of $12.55 billion, was trading at a point of 35.18% discount.

For most investors, this fund has always been a great alternative to gaining exposure in the market of Bitcoin despite the management fee of 2% annually. This is mainly because GBTC is far easier to hold for most institutional investors as one would be able to manage it through a brokerage account. 

Grayscale Bitcoin Trust has been plummeting in its valuation

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For a large part of its existence, Grayscale Bitcoin Trust had been trading at quite a hefty premium to spot the prices of Bitcoin. But it did start trading at a far nominal discount after the debut of the first North American Bitcoin exchange-traded fund in Canada back in February 2021. Now, unlike an ETF, this fund does not contain any sort of redemption mechanism.

To put it simply, the shares of GBTC just cannot be created or destroyed based on the fluctuating demand- which also explains the heavily discounted prices when compared to spotting Bitcoin. The efforts of the fund to convert one of its trusts into an exchange-traded fund did fail quite spectacularly after the rejection of the SEC in June. In theory, the approval by the SEC could have definitely rest the discount posited by the GBTC from recent levels to zero- where it would be churning out profits for those who did purchase the share at far cheaper rates. 

This led to Grayscale Bitcoin Trust suing the SEC over the rejection of its ETF application. But to put it frankly, it would take some time for the court to reach any form of the verdict- which implies that investors could see themselves being stuck with their discounted shares of GBTC.

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