Grayscale’s Bitcoin Trust Hits Record Low 43% Discount After FTX Crisis

Grayscale’s Bitcoin Trust (GBTC) achieved a new record low discount to the price of Bitcoin barely a week after the setting the last. As of Friday morning, the Bitcoin tracker investment vehicle is trading at a 42.69% discount, according to data from YCharts.

Launched back in September 2013, GBTC is a security that provides investors with a way to gain passive exposure to Bitcoin without purchasing the asset themselves. It collects money from institutional players and uses it to buy Bitcoin, which is then held in a Grayscale fund, meaning that Grayscale holds the BTC, not investors.

In the case of GBTC, a “discount” is not a positive. The fund has a discount when the price to NAV (net asset value) of Bitcoin’s current price is negative, and it is at a premium when the price to NAV is positive.

Historically, the Grayscale Bitcoin Trust usually traded at a premium to its underlying asset, but things turned around early last year, when other alternative Bitcoin investment vehicles emerged, notably Canadian exchange-traded funds (ETFs) and several other Bitcoin-based instruments such as Bitcoin futures ETFs introduced later that year.

GBTC’s premium to the price of Bitcoin was around 29% in January 2021 when it started to fall; in mid-February it was only 8%. The first Canadian ETFs were launched February 18 and February 19. By February 23, GBTC was trading at a discount to the price of Bitcoin, and it has only continued to drop in price since then, not helped by the brutal bear market of 2022, and exacerbated by the market damage of the past two weeks caused by the meltdown of FTX.

The ongoing crisis has also set crypto brokers Genesis on liquidity watch; both Grayscale and Genesis are owned by Barry Silbert’s Digital Currency Group.

Grayscale Bitcoin Trust remains the largest Bitcoin trust of its kind. Grayscale also has trusts for, among others, Ethereum, Chainlink and Solana.

Grayscale, for its part, has sought to convert the fund into an ETF (exchange-traded fund), a similar type of investment vehicle that can be traded on the stock exchange and tracks the price of an underlying asset or basket of assets.

Offering a Grayscale Bitcoin ETF will enable institutional players to redeem their shares, reducing the number in circulation and slowly closing the price gap between the investment vehicle and its underlying asset. This will also increase the value of the trust.

But all attempts to do so have been shut down by the United States Securities and Exchange Commission, which has struck down every “spot” ETF (an ETF tied to the actual current price of Bitcoin) so far, so that only futures ETFs (tied to bet on future price of Bitcoin).

In response, grayscale sued the regulator in June this year.

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

The battle for a Bitcoin spot ETF in the US continues.