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GBTC Discount Narrows to 42% Ahead of Grayscale’s ETF Hearing Tuesday

GBTC Discount Narrows to 42% Ahead of Grayscale’s ETF Hearing Tuesday

GBTC Discount Narrows to 42% Ahead of Grayscale’s ETF Hearing Tuesday

The closed-end fund's discount to net asset value had widened to 47% in mid-February.

The closed-end fund's discount to net asset value had widened to 47% in mid-February.

The closed-end fund's discount to net asset value had widened to 47% in mid-February.

AccessTimeIconMar 6, 2023, 6:10 PM
Updated Mar 6, 2023, 7:45 PM

Grayscale CEO Michael Sonnenshein (CoinDesk)

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The Grayscale Bitcoin Trust (GBTC) discount to net asset value has fallen to its lowest level in a month ahead of oral arguments in federal court on Tuesday related to Grayscale's lawsuit against the U.S. Securities and Exchange Commission.

Grayscale is appealing the SEC’s decision to deny the conversion of the trust into an exchange-traded fund. The company said it’s preparing to argue that the SEC inappropriately treated its ETF bid differently than its earlier decisions to approve bitcoin futures-based ETFs, according to the Grayscale legal team.

Known in crypto markets as the "Grayscale discount," this key metric has narrowed to 42% at press time after hitting levels of 47% in mid-February. According to data from TradeBlock, this is the trimmest discount since Feb. 7.

GBTC has been trading at a mostly steadily widening discount to NAV for nearly two years, but some investors are hopeful that the discount will continue its recent narrowing should the courts be receptive to Grayscale's ETF arguments.

“There are many investors waiting for the green light from the SEC to convert GBTC into an ETF because it will narrow the current gap,” GenTwo analyst Pablo Jodar told CoinDesk.

Jodar added that he is seeing some investors buying GBTC ahead of the hearing on Tuesday. “There are investors buying GBTC now to play the positive scenario from the lawsuit,” Jodar said, noting that it's the equivalent of buying bitcoin (BTC) at a discount to its current price. “However, it is a risky bet for sure,” he added.

Laurent Kssis, a crypto trading adviser at CEC Capital, said that with GBTC trading at such a discount, it makes sense to hold some of the shares, although traders must be brave if bitcoin’s price continues to slide. Kssis said that he isn't hearing of investors buying more GBTC shares on Monday ahead of Tuesday's hearing, but he is seeing most investors hedging against a possible drop in bitcoin’s price.

“There is room for more unwelcome news that could push bitcoin further down,” said Kssis.

“This could be a good opportunity to capitalize on any potential discount convergence to net asset value ahead of the final decision,” said Sean Farrell, vice president of digital-asset strategy at Fundstrat.

“We are seeing the market put this into practice already as GBTC is up approximately 3% against BTC this morning,” Farrell said. “While far from a certainty, it is our view that the market is underpricing the likelihood of a Grayscale victory.”

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Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.


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