Grayscale’s Bitcoin Fund GBTC hits record low 40% discount

As the price of the world’s largest cryptocurrency fell below $16,000 on Wednesday for the first time since November 2020, Grayscale Bitcoin Trust (GBTC) suffered a record 40.73% discount to the market value of the underlying asset, according to data from CoinGlass.

Designed to provide investors with an easy way to bet on the price of Bitcoin, GBTC allows investors to trade shares in trusts that hold a pool of Bitcoin, with each share tracking the price of the leading cryptocurrency.

Historically, GBTC has traded at a hefty premium for most of its life, with the price of the fund’s shares rising as much as 140% above net asset value.

The situation only changed last February after Canada and several other countries launched exchange-traded funds (ETFs) linked to the physical Bitcoin, with more ways to buy Bitcoin-like securities such as Bitcoin futures ETFs introduced later that year.

While the widening gap between the price of GBTC shares and the spot price of Bitcoin may seem like an attractive opportunity to gain exposure to the leading cryptocurrency at a discount, there is no way to redeem GBTC for actual Bitcoin.

This means that investors either hold bags of a depreciating asset or – depending on the time of purchase – are forced to sell at a loss. It does not mention an annual management fee of 2%.

No Bitcoin ETF conversion in sight

The increase in the discount could also be seen as a sign of waning optimism for a conversion of GBTC to a Bitcoin ETF – a move that Grayscale has been watching since last year.

All attempts to launch such an ETF in the US have been thwarted by the Securities and Exchange Commission, which repeatedly rejected or delayed all applications received, including Grayscale’s.

The world’s largest crypto asset manager went so far as to sue the regulator in June this year.

“The SEC fails to apply consistent treatment to similar investment vehicles, and therefore acts arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934,” Grayscale’s legal counsel Donald B. Verrilli said at the time.

Last month, Grayscale filed its opening legal brief challenging the commission’s decision to deny the conversion of GBTC to a spot Bitcoin ETF, with the firm saying it fails to justify its “completely different treatment” of Bitcoin futures ETFs and spot Bitcoin ETFs, SEC has breached the most basic requirements in the Public Administration Act and the Exchange Act.

The latter requires that rules and regulations are applied without favoring one product or another.