- The Grayscale Bitcoin Trust (GBTC) discount to net asset value (NAV) closes completely, marking an important milestone.
- The approval of the move to an ETF boosts the maturity of the crypto market, alleviating concerns about persistent discounts.
The closing of the discount to net asset value (NAV) by the Grayscale Bitcoin Trust (GBTC) marks a new beginning in Bitcoin traiding, eliminating this spread for the first time since February 2021. This transformation follows regulatory approval that allowed Grayscale to convert its core product into a Bitcoin exchange-traded fund (ETF).
GBTC’s trajectory has been significant, as its discount to NAV had been in place since February 2021 until this recent change. This development is tied to Grayscale getting the green light from the U.S. Securities and Exchange Commission to pursue the fund’s conversion into a Bitcoin ETF, which began trading the following morning along with 10 other ETFs.
The fund had experienced a significant discount, reaching record lows near 50% in December 2022, generating concern and unease among investors. However, expectations of the ETF’s approval last summer and positive sentiment toward Bitcoin contributed to the gradual narrowing of the discount.
Prior to SEC approval for ETF conversion, the discount had narrowed to as low as 5.6% last Monday. This narrowing of the discount was well received in the industry, being considered a significant relief and a symbol of maturity in the sector’s evolution.
Sean Farrell, head of digital asset strategy at FundStrat, expressed his perspective on this change, noting that
“The convergence of GBTC to NAV is a major relief for the space and a symbol of the industry moving into a new stage of maturity.”
In addition, Farrell added that this product caused “a lot of unnecessary pain in recent years for obvious reasons. “
Fund structure has been a key factor in the presence of the discount. GBTC operated similarly to a closed-end fund, lacking the intrinsic arbitrage mechanism that allows market makers to create or redeem shares at their discretion.
The lack of a proper redemption mechanism led to the huge discount to the underlying asset value, which not only affected individual investors, but also created significant credit issues as the product was used as collateral throughout the space.
Until recently, liquidity was only available in the secondary over-the-counter market. With the conversion of the fund into an ETF, Authorized Participants can now create and redeem ETF shares at NAV, thereby linking the market price of the ETF to its NAV. Matt Kunke, cryptocurrency research analyst at GSR, noted that the discount or premium will likely vary by only a few basis points from NAV in the future.
Looking ahead, Farrell noted that it will be interesting to watch how the discount to NAV behaves in the Grayscale Ethereum Trust (ETHE) now that the likelihood of eventual approval of an ether ETF has increased.
