The conflict between grayscale and bitcoin: bitcoin’s downfall
The spread between shares of Grayscale Bitcoin Trust (GBTC) and the underlying bitcoin held by the fund has widened, hitting a record 26.5% on Wednesday.
The preferred method for institutional investors to invest in cryptocurrencies without having to buy bitcoin directly has been GBTC, but shares have recently traded at a significant discount as the market for the product has declined.
The premium became a discount last February, and the discount has gradually increased since for a number of reasons, including the introduction of spot-based exchange-traded funds (ETFs) in Canada, giving investors looking to buy bitcoin through the stock market
Investor distrust of Grayscale’s plan to change the fund to a spot-based ETF could potentially be the reason for the ongoing discount. Analysts disagree on when a conversion will happen, and in the meantime, investors are saddled with fees.
A spot bitcoin ETF has not received approval from the US Securities and Exchange Commission.
It should continue to trade at a significant discount to represent that illiquidity, according to Dave Nadig, director of research and chief investment officer at ETFTrends.com. “Bitcoin will never be able to leave GBTC”, according to Nadig.
The conflict between shades of gray and Bitcoin
A few recently introduced exchange-traded funds (ETFs) for Bitcoin futures, such as the ProShares Bitcoin Strategy ETF (BITO), have also drawn harsh criticism.
Still, the asset gives buyers cheaper access to the top cryptocurrency with no lock-in period.
Grayscale’s Bitcoin instrument has underperformed, but the company has a strategy to turn GBTC into a spot Bitcoin ETF.
The company’s proposal for a Bitcoin ETF was nevertheless already postponed by the Securities and Exchange Commission (SEC) last month.
Grayscale’s ability to complete the conversion is unlikely given Gary Gensler, head of Commissionstrict, his stance on investment products backed by actual Bitcoin.
Another option for Grayscale to narrow the gap between the market price of GBTC and the intrinsic value of Bitcoin, according to James Seyffart, a Bloomberg Intelligence ETF analyst, might be to reduce fees and offer a redemption program.
He also mentioned the possibility of liquidating the fund permanently and paying the investors back as a drastic measure.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional money exchange systems. She is also fascinated by the blockchain technology and its function.
