Grayscale’s Win Sparks a GBTC Trading Frenzy as Investors Bet on a Smaller Discount on the Bitcoin Price
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Grayscale’s court victory sparked a trading frenzy in GBTC shares, driving trading volume to its highest level since June 2022.
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Some traders who had bet to reduce the discount to NAV took profits, but in this case, there could be more upside to a conversion, the CEO of Digital Asset Research said.
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Grayscale’s flagship Bitcoin fund was at the epicenter of crypto implosions last year.
Grayscale Bitcoin Trust (GBTC) recorded its busiest trading session in 14 months. The uproar was sparked by a court loss by US regulators, making it more likely that GBTC can be converted into an ETF that appeals to a broader investor base.
According to Yahoo data, nearly 20 million GBTC shares changed hands during the day, the most since the crypto market crash in June 2022. The share price rose 18% to nearly $21, the highest since Bitcoin (BTC) hit $31,000 in mid-July.
The busy session followed a federal appeals court ruling that saw the US Securities and Exchange Commission dismiss its trial by Grayscale Investments, its flagship Bitcoin-focused fund, which manages over $17 billion worth of BTC to convert to an Exchange Traded Fund (ETF). DCG, Grayscale’s parent company, also owns AskFX.
The company appealed the agency’s decision earlier this year, starting a legal standoff. The conversion would allow redemptions and close the gap between the fund’s share price trading on secondary markets and the net value per share of the fund’s BTC holdings.
BTC surged 7% to $28,000 on the news, while the discount on GBTC’s share price fell to just 17% on the day.
Take advantage of the GBTC rebate on the BTC price
The GBTC rebate played a key role in the crypto implosions of the last year. As crypto markets rallied over the past few years, GBTC shares have traded at a significant premium to net asset value. Notably, crypto hedge fund Three Arrows Capital made outsized bets to reap the bounty, but then exploded spectacularly when the fund’s shares fell into a discount in 2022 as crypto prices plummeted. After the collapse of FTX, the rebate widened to as much as 45%, data from CryptoQuant shows.
However, some investors have bought GBTC shares over the past three to six months, betting on a lower discount in the event of a positive court decision, Doug Schwenk, CEO of crypto data provider Digital Asset Research, explained in an email release .
Now some of them are taking profits as the discount has plummeted.
“We are seeing some market participants exiting GBTC positions on the news,” said Schwenk. “Of course, there are buyers taking these positions, probably hoping for a further drop in premium should the conversion be approved.”
The trade could still yield nearly a 25% return if the discount is closed on top of any BTC market gains, which “should be very attractive to arbitrageurs,” he added.
