In a remarkable turn of events, Grayscale’s Bitcoin Trust (GBTC) has become the talk of the cryptocurrency town as traders who seized the opportunity during its darkest days are now reaping substantial profits. The discount between GBTC’s share price and underlying Bitcoin holdings has steadily shrunk, catapulting the trust’s shares to new heights.
On Thursday’s market open, GBTC shares surged to $19.71, a remarkable 137% jump from last year’s December low of $8.29. During this time, GBTC traded at an unprecedented 50% discount compared to its Bitcoin holdings, an unparalleled price gap noted by Ycharts. GBTC outpaced Bitcoin’s gains, rising 48% from $17,800 to $26,300.
Grayscale’s Bitcoin Trust, managing a substantial $17 billion asset, offers investors a unique pathway into Bitcoin via security-backed shares. Each GBTC share symbolizes ownership of a fractional Bitcoin worth 0.00090084 of a full coin, amounting to $24.49 at market opening. Yet, owing to the trust’s structural limitations, shares have consistently traded at a discount since February 2021. GBTC’s 692 million outstanding shares collectively amounted to $13.6 billion, or $19.71 per share, falling short of the trust’s Net asset value of $23.73.
GBTC Discount Battle And Redemption Hopes
GBTC’s status as a closed-end fund restricts the easy conversion of shares into Bitcoin, leading to price discrepancies as supply and demand dynamics fluctuate. The discount widened significantly after the collapse of the cryptocurrency exchange FTX last year and a subsequent decline in digital asset prices. At its lowest point, a GBTC share represented just $16.22 worth of Bitcoin while trading at $8.29, per Grayscale’s official website.
The long-awaited redemption mechanism that could erase this discount may finally be within reach if the Securities and Exchange Commission (SEC) grants Grayscale’s request to convert GBTC into a spot Bitcoin ETF, an ambition the firm has pursued for years. Last June, Grayscale took the SEC to court after denying its initial application. Still, the recent courtroom victory that compelled the SEC to reconsider has resulted in a discount reduction of under 20%.
The discount began to shrink earlier this year during the hearings of the now-decided lawsuit, contracting from 46% to 34% on March 8 as the judges showed increasing scrutiny of the SEC. Since then, the discount has continued to narrow. With experts from Bloomberg’s ETF team, Eric Balchunas and James Seyffart, giving it a 75% chance of approval this year, the prospect of a spot Bitcoin ETF has garnered substantial optimism.
Notably, a similar trend in discount reduction was observed when BlackRock, one of the world’s largest asset managers, expressed its intentions to establish a spot Bitcoin ETF. Although the discount had widened to around 41% on June 15, it quickly reverted to 34% the following week. The cryptocurrency community now watches eagerly as GBTC inches closer to potentially closing the discount gap and revolutionizing the landscape of Bitcoin investment.