•Grayscale’s GBTC, a security that gives investors exposure to Bitcoin, is trading at a discount of 42.69%.
• GBTC’s price to NAV (net asset value) of Bitcoin’s current price is negative, meaning it is at a discount.
• The Grayscale Bitcoin Trust usually traded at a premium to its underlying asset, but things flipped early last year when other alternative investment vehicles cropped up.
• By February 23, GBTC was trading at a discount to the price of Bitcoin and has continued to decline in price since then.
• The crisis caused by the meltdown of FTX has put crypto broker Genesis on liquidity watch; both Grayscale and Genesis are owned by Barry Silbert’s Digital Currency Group.
• For its part, Grayscale has been trying to convert the fund into an ETF (exchange-traded fund), but all attempts have been shut down by the United States Securities and Exchange Commission.
• In response, Grayscale sued the regulator in June this year.
The Grayscale Bitcoin Trust usually traded at a premium to its underlying asset, but things flipped early last year when other alternative investment vehicles cropped up. By February 23, GBTC was trading at a discounton the price of Bitcoin and has continued to decline since then.
The crisis caused by the meltdown of FTX has put crypto broker Genesis on liquidity watch; both Grayscale and Genesis are owned by Barry Silbert’s Digital Currency Group. For its part, Grayscale has been trying to convert the fund into an ETF (exchange-traded fund), but all attempts have been shut down by the United States Securities and Exchange Commission. In response, Grayscale sued the regulator in June this year.
SEC and Grayscale
GBTC’s management team says that the discount is “unwarranted” and has been working on converting the fund into an exchange-traded product so that it can be bought and sold more easily. The U.S. Securities and Exchange Commission (SEC) has so far thwarted all of these attempts.
In response to the SEC’s repeated rejections, Grayscale filed a lawsuit against the regulator in June this year, hoping to overturn its decision. The suit is still pending, but it seems unlikely that Grayscale will win; in July, a federal judge ruled against another company that had sued the SEC over a similar issue.
Even if Grayscale eventually successfully converts the fund into an ETF, it’s unclear whether that will do much to close the discount. After all, there are already several ETFs that track Bitcoin’s price, and they don’t trade at premiums.
Grayscale Investors
Investors should also be aware of the high fees charged by Grayscale; after all, those fees eat into any gains that might be made from investing in GBTC. For example, GBTC charges 2% annually for management fees and 20% for performance fees, while other ETFs tracking Bitcoin charge management fees of 0.5% or less.
GBTC is trading at a steep discount right now, but there are several reasons why investors might want to think twice before buying it. First of all, there’s no guarantee that Grayscale will ever succeed in converting the fund into an ETF; even if it does, there are already several other ETFs tracking Bitcoin’s price that don’t trade at premiums. Secondly, GBTC charges high management and performance fees which eat into any gains that might be made from investing in it. Given all of these factors, investors might want to think twice before buying GBTC right now.
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