Last Updated: 11 November 2022
It is possible to buy ‘bitcoin’ at a 41 per cent discount at the Grayscale Bitcoin Trust (GBTC). This means that the fund’s shares are currently trading 41 per cent lower than the price value of bitcoin held on the fund’s balance sheet. The 41 per cent discount marks an all-time record for the fund.
Grayscale Bitcoin Trust Tumbles By 41% Amid The FTX Calamity https://t.co/2Ay0IBOvDw
— W3B Portfolio News (@W3B_news) November 11, 2022
Structural problem for GBTC
The problem for GBTC lies in the fact that it is on a so-called trust fund, which means they cannot simply create or destroy shares, which is possible in the case of an ETF. This creates inefficiencies that cause significant differences between the market value of bitcoin and the fund’s share price.
This is therefore why GBTC has been trying to convert the fund into an ETF for some time. This would make it possible to create and destroy shares. This would also allow the discount or premium to be minimised.
So far, all GBTC’s applications to turn the fund into an ETF have been rejected by the Securities and Exchange Commission (SEC). A key argument for the rejection is the potential for market manipulation that the SEC still sees in the bitcoin market. That view is unlikely to change any time soon after the drama at FTX.
Grayscale to court
In response to the SEC’s latest 29 June rejection, Grayscale has gone to court to enforce that they be allowed to make GBTC an ETF. However, the chances of them succeeding, given current developments in the market, seem slim. With the dropping of FTX, the SEC seems to have been proved right for the time being.
With this, the industry is showing it is not yet mature enough to launch a US spot bitcoin ETF. However, it will still be months before the court makes a final ruling on this. In fact, Grayscale only finally started the case on 11 October.
For now, we will have to wait and see how the situation around FTX evolves and whether other parties may go head-to-head because of the failing exchange platform. So either way, there are exciting weeks ahead for bitcoin.