GBTC's Discount to NAV Hits New Record Low after SEC Declining its Bitcoin Spot ETF Application
Nicholas Otieno Jul 04, 2022 03:35
Grayscale’s flagship product GBTC has continued to widen its discount. The discount signals the poor performance of the Bitcoin fund. As a solution, Grayscale wants to convert the GBTC into a spot Bitcoin ETF.
The shares of the Grayscale Bitcoin Trust (GBTC) saw a new record low of -31% last Thursday, June 30; that is, GBTC's discount hit -31%, its lowest point in history.
The discount means the market price of GBTC shares is over 31% lower than its net asset value (the value of the underlying Bitcoin).
Before the news regarding U.S. Securities and Exchange Commission (SEC) 's rejecting Grayscale's application to turn its GBTC instrument into an ETF last Wednesday, the GBTC discount was 28.4%.
Investors in the Grayscale Bitcoin Trust (GBTC) face more losses as the popular investment product widens its record discount.
GBTC has long been an investment product of choice for several institutional investors, providing them exposure to Bitcoin without the need to buy the underlying asset.
However, the offering has many drawbacks, including a six-month lockup period and an annual management fee of 2%.
There are several factors behind the poor performance of GBTC. The current discount potentially means a weakening interest in the asset, as there is more GBTC supply than demand. This indicates a bearish signal of broader institutional sentiment towards Bitcoin. Furthermore, new competitive products in the market, like Canadian Bitcoin exchange-traded funds (ETFs), also give new alternatives to investors.
GBTC's record low comes as Bitcoin struggles below the $20,000 mark. The crypto market has extended its losses as several major crypto coins are in a bloodbath. Bitcoin was trading at $19,080 per coin during the Asia trading sessions on Monday local time. Wider cryptocurrencies have further plunged as investors maintained a panic selling after the recent liquidation of crypto hedge fund- Three Arrows Capital (3AC).
Further Road Ahead
Grayscale considers the conversion of GBTC into a Bitcoin ETF as the best solution. The company recently said it is "100% committed" to turning the investment product into a Bitcoin ETF. However, it appears that the regulatory environment in the U.S. is still not ready.
Last week, Grayscale sued the SEC a few hours after the regulator rejected its application to convert its flagship Grayscale Bitcoin Trust product (GBTC) to an exchange-traded fund (ETF).
Last Wednesday, the SEC turned down Grayscale's application for a spot Bitcoin ETF, citing the investment management firm's failure to answer questions about market manipulation concerns. The regulator is concerned investors would lack adequate protections under the Grayscale proposal.
In the past, Grayscale had piled pressure on the regulator to side with its application. In early May, Grayscale met privately with the SEC to persuade the watchdog to approve the conversion of its GBTC into an ETF.
Converting the Grayscale Bitcoin Trust into a NYSE-traded exchange-traded fund (ETF) would widen access to Bitcoin, enhance protections, and unlock up to $8 billion in value for investors. And a discount would disappear upon conversion, that is, according to Grayscale.
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