Could GBTC’s shrinking discount turn to a premium?

Last week, the discount at which Grayscale Bitcoin Trust shares trade compared to its net asset value closed at a level unseen since 2021.

But it is unlikely to get much lower than its current 8% discount, some segment observers say. Its shares trading at a premium are even less probable, they agree.

Eligible shares of GBTC are quoted on the OTC Markets Group. The value at which those are sold has fluctuated in the form of premiums and discounts to the value of bitcoin that it holds. 

The shares haven’t traded at a premium since February 2021, according to YCharts.com. And the discount was as steep as 46% in January, the data shows.  

But the discount shrunk to roughly 8% on Friday, reflecting increased investor confidence in the potential approval of a bitcoin spot ETF. Following its court win against the US Securities and Exchange Commission, Grayscale is working on converting GBTC to an ETF — a move the firm has said would essentially get rid of the current discount on its shares.

Read more: Grayscale trust discounts keep shrinking — here’s why

The discount has historically moved as bitcoin’s price has. 

A dip in price to about $35,700 last week — as news unfolded about the guilty pleas of Binance and its CEO — was offset by clarity that such regulatory action against the exchange had been resolved, Fineqia International analyst Matteo Greco said in a Monday research note. This led to what he called “renewed stability in the market.” 

Bitcoin’s (BTC) price was at about $37,500 around 12:00 pm ET Monday — down 0.4% in the previous 24 hours.

“Any news related to settlements between law enforcement and digital asset service providers plays a vital role in bridging traditional finance and digital assets, increasing the likelihood of capital inflow from traditional finance investors,” Greco added in the note.

Will discount turn to premium?

Chase White, senior research and policy analyst Compass Point Research & Trading, said uncertainty remains around when the SEC could allow GBTC to convert to an ETF. Barring any concrete news on that front, the discount is likely to stay at a high single digit to low double digit discount compared to its net asset value, he said. 

“This is because there’s still a risk that the conversion is not approved,” he told Blockworks. “And if the discount gets too low [or] becomes a premium, traders playing for the narrowing of the discount will sell their positions — because the trade is over and they know a premium will be wiped away at conversion just like a discount would be.”

Fund group Ark Invest has recently sold shares of GBTC — most recently shedding 94,624 shares of the trust from its Ark Next Generation Internet ETF (ARKW) on Nov. 24. 

Dave Nadig, a financial futurist at data firm VettaFi, said there is “no mechanical reason” for GBTC to trade at a premium.

“If anything I expect outflows as parity approaches, which, because of no redemption, means more discount,” Nadig said.

Likely the only way the GBTC discount completely disappears is if other fund issuers get regulatory approval to launch a spot bitcoin ETF, Greco said. The SEC is set to rule on such a proposal by Ark Invest and 21Shares by Jan. 10.

“This way customers would know that with almost certainty the GBTC conversion will be approved shortly, and buying at a discount would basically mean a strong likelihood of buying BTC at a lower price compared to the market price,” Greco told Blockworks. 

GBTC had previously traded at a premium when ways to get exposure to bitcoin were more limited, he added. Investors have found other proxies to do so in the past three years or so.

“In the off chance that it did trade at a premium, we think that would be short lived,” White said. “Traders would sell out of their positions.”

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