Why GBTC conversion to an ETF would ‘immediately bring relief’ to the crypto industry
Shares of Grayscale’s Bitcoin Trust (GBTC) have risen more than 17% since Friday as optimism around the company’s efforts to convert the trust into an ETF grows.
As of Wednesday, GBTC was trading at a 35.7% discount to the value of its bitcoin holdings, according to data from YCharts. That’s up from a discount of close to 45% at the beginning of this month.
On Tuesday, the crypto asset manager delivered oral arguments in a Washington appeals court on Tuesday in its lawsuit against the SEC to deny its application to convert the trust into an ETF that holds bitcoin.
Shares in GBTC had their biggest trading day since Nov. 22 on Tuesday with just over 8 million units of the trust changing hands, according to a Grayscale spokeswoman.
A decision in the case is not expected until June at the earliest. However, Grayscale maintains that winning the lawsuit against the SEC is the asset manager’s best path to pull shareholders back to breakeven by allowing the trust to automatically create and redeem shares.
After Tuesday’s hearing, Bloomberg Intelligence, which previously favored the SEC with a 60% chance of winning the case, reversed the odds in Grayscale’s favor, giving the asset manager a 70% probability of winning.
“We expect the court to vacate the SEC order dismissing Grayscale’s [ETF] application,” James Seyffart, an ETF analyst with Bloomberg Intelligence, said in a research note on Wednesday.
“Converting [GBTC to an ETF] would be a windfall for current GBTC holders and immediately bring relief to the overall industry,” Sean Farrell, head of digital assets at Fundstrat, told Yahoo Finance.
If the trust is approved to convert to an ETF, shares can be automatically redeemed and created. This would eliminate the discount, giving shareholders approximately $5.5 billion based on the current discount. Pending a positive ruling, Farrell said he expects the discount to continue to narrow as investors seek to harvest the spread between GBTC’s market price and net asset value (NAV).
“A win for Grayscale will also be encouraging for all other cases against the SEC that the industry faces,” Farrell said.
Even if Grayscale wins the case, approval to convert the trust into an ETF is far from assured.
The language in such a court decision can be more important than who wins, according to Bloomberg’s Seyffart. The ruling could give the SEC the option to reject Grayscale’s application on various grounds or lock the agency into accepting it.
“We’re leaning towards the former for now,” Seyffart added.
There could also be “other structural issues with the product that could lead to rejection,” according to Bruno Ramos de Sousa, US head of crypto-asset manager Hashdex.
To be sure, a conversion of one of the existing US-listed bitcoin futures ETFs – or even an entirely new product – might have a better chance of succeeding with the SEC, de Sousa pointed out.
“A lot of other players are going to leave,” Seoyoung Kim, an associate professor at Santa Clara University’s Leavey School of Business, told Yahoo Finance Live on Wednesday. For example, other issuers can apply for a bitcoin ETF, and any approved ETF will also require “authorized participants” — or large institutional investors who act as market makers — for any such product, Kim explained.
“Given the size of the US ETF market and pent-up demand from investors, a spotbit ETF in the US would certainly change the face of the global bitcoin market,” de Sousa said.
David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers
Click here for the latest crypto news, updates, values, prices and more related to Bitcoin, Ethereum, Dogecoin, DeFi and NFTs
Read the latest financial and business news from Yahoo Finance
