On July 6th, the discount on the Grayscale Bitcoin Trust (GBTC) dropped to its lowest level in a year, as it stood at about 26.7% of its Net Asset Value (NAV).
This improvement comes at a time when a lawsuit against one of Grayscale’s shareholders reached a settlement and there were a number of exchange-traded fund (ETF) applications submitted in the US.
GBTC
The smallest unit of BTC held by a trust based in the United States is represented by one GBTC. Currently, the trust owns Bitcoin valued at about $19.07 billion.
At publishing time, GBTC had been trading at about a 27.8% discount on the price of spot BTC. Since February 2021, the shares of GBTC have been trading at a discount to the market value of Bitcoin.
In December 2022, the shares saw the discount drop to as low as 50%. The fact that the GBTC is actually a closed-ended fund is the primary reason behind the discount in its shares.
This means that it is not possible for any GBTC investor to redeem their shares for the underlying BTC, which reduces its demand and makes it difficult to assess its fair market price.
ProShares Bitcoin Strategy ETF is one of the various alternative investment products that are available in the market, which has seen a high demand since it was launched in the previous year.
This is because it tracks the price of the pioneer cryptocurrency very closely. In addition, there is also a 2% annual management fee associated with GBTC, which into its principal value slowly.
ETF or redemptions
Grayscale has been trying to facilitate its investors by converting the trust fund into an exchange-traded fund (ETF). This would enable people to redeem their shares at the market price of Bitcoin.
However, it has been unable to secure approval from the US Securities and Exchange Commission (SEC) for this purpose so far.
As a matter of fact, the rejection from the SEC prompted the asset manager to file a lawsuit against the securities regulator in court.
The lawsuit’s verdict is expected to be announced this fall. On June 16th, a Bitcoin ETF filing was submitted by BlackRock, the world’s largest asset manager.
Therefore, hopes of an ETF approval are high in the market and there is also a possibility that Grayscale may also get the green light.
Demand for GBTC
Before BlackRock’s filing, the GBTC discount had stood at 44%, but it declined to 26.7% within a month’s time.
Another factor that has pushed up the demand for GBTC is the possibility that regardless of the approval of the ETF, they might decide to open up redemptions
This is because Fir Tree Partners, one of the major shareholders of Grayscale, has increased their scrutiny.
In 2022, books-and-records litigation had been filed by the said shareholder against Grayscale last year in which it had been accused of conflict of interest and mismanagement.
A day earlier, there had been an out-of-court settlement between the two, as Grayscale agreed to provide certain records and books demanded by Fir Tree.