[TheDefiant]
It’s hard to find an asset that has outperformed BTC this year, but Grayscale’s Bitcoin Trust (GTBC) has accomplished that handily.
GBTC, a security which represents an underlying cache of Bitcoin, hit a year-to-date high of $26.89 on Nov. 1, more than triple its price of $8.20 on Jan. 1. The rally dwarfs Bitcoin's own resurgence in 2023, where the world’s most valuable digital asset outpaced the S&P 500 by over 100% this year on its way to hitting $35,381.
GBTC is a major component of the overall crypto market — it has $21.4B in assets under management, according to its issuer, Grayscale.
The reason for the price discrepancy between GBTC, which is backed by Bitcoin, and the cryptocurrency itself, lies in the product’s structure — GBTC is a closed-ended fund, meaning that its shares cannot be quickly redeemed for the underlying Bitcoin.
Because of this, GBTC generally trades at a premium or discount relative to the net asset value (NAV) of the underlying bitcoin. After trading at a premium as the bull market of 2021 kicked off, GBTC’s discount to NAV peaked in late December 2022 at nearly 50%.
Since then, the discount has shrunk to less than 14%, the narrowest in nearly two years.
Potential ETF Conversion
Pelli Wang, the co-founder of Bracket Labs, a trading system which offers range-bound products, offered a possible explanation for GBTC’s discount shrinking — investors may be piling in ahead of a potential conversion of GBTC from its closed-end model to a straightforward exchange-traded fund (ETF).
Such a conversion would mean that GBTC shares could be easily redeemed for Bitcoin, essentially erasing any discount, allowing investors to profit as GBTC came back to par with its underlying NAV.
In particular, Wang thinks BlackRock’s application for a spot Bitcoin ETF is convincing investors to bet that GBTC will also soon convert to an ETF. “It would look really bad if the SEC only granted BlackRock the ETF,” Wang said, suggesting that the SEC may clear a handful of other players to also launch spot BTC ETFs.
There are additional signs that a GBTC conversion is possible — last month, the SEC declined to appeal an August ruling that found the regulator’s denial of Grayscale’s application to convert GBTC to an ETF unsatisfactory.
The SEC has also scheduled a closed meeting on Nov. 2, which some pro-Bitcoin media outlets are speculating may involve a discussion of Blackrock, Grayscale, and others’ applications.
From Premium To Discount
A conversion would put an end to a long saga of GBTC trading at both a premium and discount relative to BTC.
When GBTC traded at a premium — for most of its existence until February 2021 — there were far fewer options to get exposure to Bitcoin.
“What happened was people started to get smarter about actually just owning Bitcoin outright,” Wang said.
Microstrategy, the publicly traded analytics company that has amassed roughly $4.68B of BTC, is one example of a prominent investor that skipped the GBTC route — the company has chosen platforms like Coinbase to buy the digital asset directly.
GBTC was always intended to convert into an ETF, says a post from Grayscale.
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