Grayscale Bitcoin Trust hits a record 41% discount amid market turmoil

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(Kitco News) –  Amid the fallout from the FTX fiasco, the price of Bitcoin has fallen to its lowest level in two years, losing 21% of its value in just five days. This had a knock-on effect that impacted many in the industry including Grayscale Investments, the digital currency investing services company that offers the Grayscale Bitcoin Trust (GBTC). 

On Wednesday, the GBTC recorded its largest discount ever – 41% – which represented a price per share of $8.76 at the close of markets. For comparison, on Nov. 12, 2021, GBTC had a price per share of $51.47, which indicates a decline of 83% over the past year. 

And it’s not just GBTC that is struggling to hold its value, as data from Coingalss shows that the top five products offered by Grayscale, which includes Ethereum, Ethereum Classic, Litecoin, and Bitcoin Cash, all have a double-digit negative premium rate. 

Grayscale investment holdings. Source: Coinglass

GBTC became a popular investment vehicle following its launch in 2013 as it was one of the only ways institutional investors could access BTC. As the years have passed and other options became available – ones that didn’t any management fees or premiums – interest in GBTC has diminished. 

Due to the fees involved, the value of GBTC shares don’t accurately match the value of Bitcoin, which has led the vast majority of investors to shun the product in favor of better options. 

Structural problems with how GBTC is designed haven’t helped matters, either. The trust is considered a closed-end funt, which means the number of available shares are limited. This means that new shares are not freely created and there is no redemption program. 

As a result of its inefficient design, significant price discrepancies are common between the value of GBTC and the fund’s underlying Bitcoin holdings. 

Another headwind that is limiting the success of GBTC has been the launch of Bitcoin Exchange Traded Funds (ETF), such as the Purpose Bitcoin ETF, which was the first physically settled Bitcoin ETF available to investors.

ETFs allow market makers to create and redeem shares, which ensures the premium or discount is minimal most of the time. 

Because of the optimal design, Grayscale has been attempting to convert the GBTC to an exchange-traded fund (ETF) to take advantage of the optimal design.  The firm filed an application to do so in October 2021, but the Securities Exchange Commission (SEC) officially denied the request on June 29. 

Grayscale has since filed the opening legal brief challenging the decision by the SEC, and the deadline for the SEC to respond and submit its brief was Wednesday, Nov. 9. Next, Grayscale is required to submit a reply brief on Nov. 30 before both parties submit a final brief on Dec. 21. 

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