Shares in Grayscale Investment’s Bitcoin Trust (GBTC) are trading at a 16% discount to the price of the underlying Bitcoin (BTC). The narrowing of the discount from 48% at the start of this year suggests investors are optimistic the US Securities and Exchange Commission (SEC) will approve GBTC’s conversion into an exchange-traded fund (ETF).
Shares in Grayscale’s trust are priced at $20.44, a 16% discount to the open market value of their underlying Bitcoin. Earlier this year, the shares traded at $13.30, a 48% discount to net asset value (NAV).
ETF Hopes Make Investors Bullish Ahead of Halving
The closing of the discount could suggest a shift in investor sentiment after Grayscale successfully contested the SEC’s rejection of its proposal to convert GBTC into an ETF. In the last few months, institutional interest in Bitcoin has grown significantly, with several Wall Street firms applying to launch spot ETFs.
Read more: What Is Bitcoin? A Guide to the Original Cryptocurrency
The SEC has delayed ruling on several ETF applications from ARK Invest, BlackRock, Franklin Templeton, and other Wall Street heavyweights. If approved, these products could create additional demand for Bitcoin and boost its price as investors await the halving, a process that reduces the rate at which new Bitcoins are released into circulation.
Read more: What Is Bitcoin Halving?
The closed nature of the trust means that investors can buy but not redeem GBTC shares on the open market. The lack of a redemption mechanism often means that the price of GBTC Bitcoin can deviate from market prices.
Grayscale Putting All Its Might Behind ETF
Last year, Grayscale contested a decision by the SEC to reject GBTC’s conversion into an ETF. Should GBTC be converted into ETF, shareholders can bring its share price closer to the NAV through redemptions.
Otherwise, investors can only sell their shares on the open market at a discount.
Grayscale CEO Michael Sonnenshein told shareholders in 2022 that the firm could buy back up to 20% of outstanding shares. The tender offer would narrow the discount between GBTC and NAV by allowing investors to sell shares back to Grayscale at a specific time and price.
He emphasized that the firm’s priority was to win its appeal against the SEC, which it did in late August. A US court told the SEC the grounds for rejecting Grayscale’s application were “arbitrary and capricious.”
The SEC’s decision not to appeal the ruling, together with other ETF applications, appears to have made investors optimistic about an imminent approval. The SEC has a maximum of 240 days to make a final decision.
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