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Investors who took the opportunity to buy Grayscale Bitcoin Trust (GBTC) shares at a discounted price last December are now seeing significant gains as the gap between GBTC’s price and its actual Bitcoin holdings has narrowed.
When the markets opened on August 31st, GBTC shares were trading at $19.71, which is a remarkable 137% increase from their price of $8.29 on December 13th of the previous year. Back in December, GBTC was trading at nearly a 50% discount compared to the value of its Bitcoin holdings. This marked the largest price difference the trust had ever experienced, according to reports from Ycharts.
What’s interesting is that the gains from holding GBTC shares since December 13th have outpaced the performance of Bitcoin itself. During this period, Bitcoin’s price increased by 48%, going from $17,800 to around $26,300.
Grayscale’s Bitcoin Trust is a vehicle that allows investors to gain exposure to Bitcoin through a security-based investment. Each GBTC share represents ownership of a fraction of a Bitcoin, currently valued at approximately 0.00090084 of a single Bitcoin, which was worth $24.49 when the market opened.
However, GBTC shares have been consistently trading at a discount since February 2021 due to the trust’s structure. The total value of GBTC’s 692 million outstanding shares was $13.6 billion, or $19.71 per share, which is less than the trust’s net asset value (NAV) of $23.73.
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The closed-end fund structure of GBTC means that its shares cannot be easily converted into Bitcoin. This leads to discrepancies in GBTC’s price, as the number of existing shares cannot be adjusted to match Bitcoin’s price changes driven by supply and demand.
It’s worth mentioning that the discount on GBTC shares widened when the cryptocurrency exchange FTX faced a crisis last year, causing a drop in digital asset prices. At its lowest point, a GBTC share represented only $16.22 worth of Bitcoin while its market price was $8.29, as reported by Decrypt.
The discount could potentially disappear if the Securities and Exchange Commission (SEC) grants Grayscale permission to convert GBTC into a spot Bitcoin ETF, a move the company has been seeking for some time. Such a conversion would introduce a redemption mechanism and align GBTC’s price more closely with that of Bitcoin.
Last June, Grayscale took the SEC to court after the agency initially rejected its application to convert GBTC into a Spot Bitcoin ETF. Following a recent legal victory, which forced the SEC to reconsider its decision, the discount has now fallen to below 20%.
The discount briefly narrowed earlier this year when judges overseeing the lawsuit between Grayscale and the SEC heard arguments. It decreased from 46% to 34% between March 8th and a week before, as the judges appeared to question the SEC’s stance.
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A similar trend occurred after BlackRock, one of the world’s largest asset managers, announced its intention to launch a spot Bitcoin ETF. The discount had widened to around 41% on June 15th but then decreased to 34% in the following week.
Currently, the discount continues to shrink. Bloomberg’s ETF experts Eric Balchunas and James Seyffart suggest that there is a 75% chance of a spot Bitcoin ETF being approved this year.
