GBTC discount narrows to 42% ahead of Grayscale’s ETF hearing on Tuesday

Grayscale Bitcoin Trust (GBTC) discount to net asset value (NAV) has fallen to its lowest level in a month ahead of oral arguments in federal court on Tuesday related to Grayscale’s trial against the US Securities and Exchange Commission (SEC).

Grayscale is appealing the SEC’s decision to deny the trust’s conversion to an exchange-traded fund (ETF). The company said it is preparing to argue that the SEC improperly treated its ETF bid differently from previous decisions approving bitcoin futures-based ETFs, according to Grayscale’s legal team.

Known in cryptomarkets as the “Grayscale Discount,” this key metric has declined to 42% at press time after reaching levels of 47% in mid-February. According to data from TradeBlock, this is the tightest discount since February 7.

GBTC has traded at a mostly steadily increasing discount to NAV for nearly two years, but some investors hope the discount will continue its recent narrowing if the courts are receptive to Grayscale’s ETF arguments.

“There are a lot of investors waiting for the green light from the SEC to convert GBTC to an ETF because it will reduce the current gap,” GenTwo analyst Pablo Jodar told CoinDesk. .

Jodar added that he sees some investors buying GBTC ahead of Tuesday’s hearing. “There are investors who are buying GBTC now to play the positive scenario from the lawsuit,” Jodar said, noting that it is equivalent to buying bitcoin (BTC) at a discount to the current price. “But it’s definitely a risky game,” he added.

Laurent Kssis, a crypto trading advisor at CEC Capital, said that with GBTC trading at such a discount, it makes sense to hold some of the shares, but traders need to be brave if bitcoin’s price continues to slide. Kssis said he is not hearing about investors buying more GBTC shares today before tomorrow’s hearing, but he sees most investors hedging against a possible drop in bitcoin’s price.

“There is room for more unwelcome news that could push bitcoin further down,” Kssis said.

“This could be a good opportunity to take advantage of any discount convergence to net asset value before the final decision,” said Sean Farrell, Fundstrat’s vice president of digital asset strategy.

“We are seeing the market put this into practice already as GBTC is up about 3% against BTC this morning,” Farrell said. “While far from a certainty, it is our view that the market is underestimating the likelihood of a win in shades of grey.”