Bitcoin Trust discount narrows as grayscale win prospects improve
A win could allow Grayscale to convert the trust into an ETF.
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Bitcoin in shades of gray
The trust, which trades under the ticker GBTC, is listed at $13.24 a share, a discount of about 34% to the value of the bitcoins it owns, the narrowest gap since Sept. 22, according to Bloomberg data.
The discount was reduced after the hearing in which a panel of judges at the Circuit Court of Appeals for the District of Columbia expressed skepticism about the SEC’s arguments made in defense of the decision to deny Grayscale’s application to convert GBTC to an exchange-traded fund in June – specifically why the agency considered bitcoin futures prices more resistant to manipulation than the spot market, on which the ETF would be based. The SEC has approved several bitcoin futures ETFs, but repeatedly rejected funds that hold bitcoin directly, including Grayscale’s.
Converting to an ETF will allow anyone to buy shares, unlike the current limit for accredited investors and with a minimum period of six months. It would also eliminate the huge discount, unlocking $5.5 billion in value.
“We walked out of the courtroom feeling really encouraged and hopeful that these arguments would be persuasive in court,” says CEO Michael Sonnenshein.
Analysts have echoed the sentiment, increasing Grayscale’s odds of victory. “Going into arguments, we thought the SEC was 60% favored, but we now think Grayscale is 70% likely to win,” Elliott Stein, Bloomberg’s senior litigation analyst, wrote in a recent Note.
Vasu Nigam, regulatory and policy fellow at investment firm Bain Capital Crypto, wrote the judges “seemed sympathetic to Grayscale’s arguments.” He adds that it is always difficult to predict the final outcome, but this will definitely not be an easy win for the SEC.
However, even if Grayscale wins the case, it does not necessarily mean that the ETF application will be approved. “The language of the court will be the key,” writes Stein. “The court will likely send the case back to the SEC for the agency to revisit its reasoning, including perhaps better distinguishing between language in previous orders that approved futures-based bitcoin ETFs and wording in the grayscale rejection order. That could drag things out further.”
Grayscale spokeswoman Jennifer Rosenthal said the firm expects a ruling by the fall.
On March 6, cryptocurrency exchange FTX, embroiled in bankruptcy proceedings after a quick collapse in November, filed a lawsuit against Grayscale on behalf of its associated hedge fund, Alameda Research, accusing the firm of charging “exorbitant management fees in violation of the trust agreements,” together 1.3 billion dollars.
In a comment on the lawsuit, Sonnenshein said Forbes: “This is a really false complaint. While I can appreciate that from a fiduciary standpoint the new management team at Alameda is looking to recover assets where they can for short-term gains, it certainly flies in the face of the work being done to convert GBTC to an ETF, which we everyone knows and everyone agrees will unlock the most value for shareholders, including Alameda, and be the most optimal long-term product structure for GBTC.”
