Amid bitcoin‘s volatile price moves this week, a key indicator of market health known as the “Grayscale discount” showed improvement, data shows.

Grayscale’s Bitcoin Trust (GBTC), the largest U.S. investment vehicle for buying bitcoin through a stock exchange, is trading at a 10% discount to its net asset value (NAV), narrower than a near 20% discount a week ago. The discount is the difference between the price of the underlying bitcoin asset and the value implied by the price of the trust’s shares.

Some analysts expect the discount to eventually converge to NAV because the trust plans to convert to an exchange-traded fund. As CoinDesk reported on May 14, the set-up might offer an opportunity for retail traders to recapture the discount as profit while still booking any gains from the cryptocurrency itself. In other words, it might be a cheap way of gaining exposure to bitcoin.

Now, an additional factor looms on the horizon that might help to further shrink the discount: the full expiration of lockup agreements that have trapped some investors in the investment vehicle.

In recent years, accredited investors – usually big institutional players or wealthy individuals – could profit from buying into GBTC at the trust’s NAV. After a six-month lockup period, investors could then sell their shares for a profit in the open market and capture the additional premium. (Grayscale is owned by Digital Currency Group, of which CoinDesk is an independent subsidiary.)

Last year, it was seen as a brilliant trade. But earlier this year – around March – the premium evaporated and flipped to a discount. New money flows into GBTC have dried up, and according to Grayscale, the trust has been closed to new investments since March 2 “for administrative reasons.”

By the end of June, the six-month lockups should have mostly expired, which means that any of the previously trapped investors who wanted to exit their investments would have already had the chance to leave. 

“The unlock schedule should end by June and you won’t have many sellers beyond that point,” said Daniel Matuszewski, co-founder of CMS Holdings, a crypto investment firm, during an interview with CoinDesk.

So the bet is the discount might narrow further once those sellers are no longer exerting downward pressure on GBTC shares.

Chart was annotated by CoinDesk to show recent GBTC trading at a discount to NAV.
Source: Skew
Chart was annotated by CoinDesk to show a period of accumulation during the Q4 2020 BTC rally – these funds are scheduled to exit lockout period in June. GBTC is closed to new investments as of March 2.
Source: Skew
Table shows the value of vesting shares based on GBTC.
Source: Bloomberg
Disclosure
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.