25 Apr 2022
The discount of Grayscale’s bitcoin trust is narrowing
GBTC’s discount has narrowed slightly in the last month. Are traders positioning themselves for a positive outcome of Grayscale’s ETF filing, or are we just experiencing more rational pricing?
By July 6th, Grayscale will receive the final verdict from the SEC regarding Grayscale’s filing aiming to convert its close-ended BTC trust to an ETF.Already, ten physical ETF filings have been denied by the SEC so far since VanEck received its verdict in November. It seems likely that Grayscale will face a similar destiny, given no material changes in neither market structure nor regulation since ARK’s and Fidelity’s denials earlier this year.Nevertheless, Grayscale is putting a stellar effort into pushing public uproar, urging commenters to argue in favor of the conversion. This might have caused the downward trend in the Grayscale discount to its NAV to reverse. However, we saw similar dynamics in the run-up to the VanEck verdict, which was followed by a sharp decline as VanEck’s filing was denied. Since March 14th, the discount in GBTC has narrowed from 29.42% to 23.2%.Despite the unlikelihood of an ETF approval during this cycle, there are strong arguments in favor of narrowing discounts. A 30% discount to GBTC’s NAV is stiff, and at such low levels, purchasing GBTC might be a positive expected value (EV) trade compared to spot bitcoin. The fund has a yearly management fee of 2%. While this fee is high relative to what’s common in similar structures, a 30% discount is hefty. Through its ETF push, Grayscale has made its intentions pretty clear. They eventually want to convert their fund into an ETF, preferably now, but even more likely sometime in the future.Assuming GBTC successfully converts to an ETF within the next five years, the current discounts are offering an attractive entry. An ETF conversion will lead the discount to diminish due to active redemptions. Paying 2% a year for GBTC trading at a 23% discount to its underlying bitcoins might be a lucrative long-term play.