Grayscale Bitcoin Trust currently trading at a discount of 35% compare to the value of the underlying asset.
Grayscale Bitcoin Trust is not showing an end to drops as shares of the largest Bitcoin Fund are currently trading at a record discount rate of 35.2% since last Friday.
GTBC shares are used by their investors to trade in trusts and hold Bitcoin pools, each share is supposed to track the price of Bitcoin. The original idea was to give traditional investors a way to join in on the wave of the world’s leading cryptocurrency all without needing to actually hold the crypto.
GTBC has had a history of being traded at a lofty premium to spot Bitcoin prices since its beginning in 2013. Investors seemed to be drawn to this despite the hefty 2% annual management fee.
Currently, the situation has changed as the trust has flipped negative and began trading at a discount spot on Bitcoin prices since the end of February 2021, this was after the launch of Bitcoin ETFs in Canada.
A discount to the net asset value (NAV) can be considered a bargain as it allows the investors to buy “shares” of Bitcoin below the actual market value but there is indeed a catch, there is no way to redeem the shares on GBTC.
What this translates to is the arbitrage trade of buying the discounted shares, and them redeeming them for the underlying asset, and thus selling the underlying asset for a profit is basically impossible, the investor is then stuck with a decaying asset or they are forced to sell it at a loss.There are currently $11.9 billion worth of assets under the management of Grayscale according to their website.
The company has long stated the only way to resolve this problem is to be able to convert their product into another Bitcoin ETF or exchange traded fund which would be backed by physical Bitcoin thus bringing the product back into the correct value.
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The problem with this solution is the same problem much of crypto is facing – The United States and the SEC. The SEC has not given permission for any spot Bitcoin ETF for investors in The United States but it has approved Bitcoin ETFs for futures.
The application submitted by Grayscale was denied in June as the regulator stated it did not do enough to protect investors from “fraudulent and manipulative acts and practices”
Grayscale has filed a lawsuit against the SEC with CEO Michael Sonnenshein stating that his company will not let down and continue to leverage all of its resources advocating for its investors and the “equitable regulator treatment of Bitcoin investment vehicles”