Contrarian investors who snapped up shares in Grayscale Investment's bitcoin trust (GBTC) in early January, a time of gloom and doom in the crypto and crypto-adjacent markets, have been rewarded handsomely.
GBTC shares have surged 220% to $26.79 this year, according to charting platform TradingView. Meanwhile, Nvidia Corp (NVDA), the best-performing S&P 500 stock, has risen 198%, with the index registering a 9% gain. Bitcoin (BTC) has doubled this year to $35,000 while traditional fixed-income instruments like government bonds have crashed.
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GBTC's outperformance comes amid hopes the U.S. Securities and Exchange Commission (SEC) would greenlight the conversion of the Grayscale Bitcoin Trust into an open-ended exchange-traded fund (ETF) that invests in bitcoin.
The optimism has seen the discount in the GBTC shares relative to the trust's net-asset value (NAV) narrow to 13% from 46% this year, with traders buying GBTC shares while hedging downside risk by simultaneously selling bitcoin in the spot/futures market. As soon as the conversion is approved, market makers will return the price to the NAV.
"GBTC is the gift that keeps giving. Congratulations to those (many on this list) who nailed the narrowing of the spread playing against the futures," Ilan Solot, co-head of digital assets at Marex Solutions, said in an email last week.
The bi-legged strategy aimed at profiting from the narrowing of the GBTC discount may have capped gains in bitcoin early this year.
With the discount fast narrowing amid increased prospects of SEC approving the conversion to an ETF, traders may unwind the strategy, including the short BTC futures leg, bolstering bullish pressures around the cryptocurrency.
"As the GBTC ETF conversion approval seems increasingly likely, investors know that market makers will bring the price back to NAV as soon as it starts trading. As this investment instrument normalizes back to NAV value for investors, it seems likely that short BTC pressure will subside and support upward pressure on BTC spot price," Alexander S. Blume, managing partner at Two Prime Digital Assets, told CoinDesk.
Bitcoin has risen 28% in less than two weeks, hitting 17-month highs above $35,000 mainly on the back of spot-ETF rumors, including the one about the supposed listing of BlackRock’s spot bitcoin ETF ticker, IBTC, on clearing house DTCC's website.
Expectations are for the SEC to approve several spot-based ETFs early next year. While the consensus is for bitcoin to surge to $50,000 and higher following the approval of ETFs, the financialization could also bring additional selling pressure to the market.
"ETFs will also allow more institutional participants to short this instrument. It’s unclear how that will affect the market," Blum said.
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