Will the continuously shrinking discount of GBTC turn into a premium?

Could GBTC's steadily diminishing discount eventually evolve into a premium?

Author: Ben Strack, Blockworks; Translated by: Song Xue, LianGuai

Last week, the Grayscale Bitcoin Trust (GBTC) stock trading price reached its highest level of discount compared to its net asset value since 2021.

However, some market observers believe that it is unlikely to see a larger discount than the current 8%. They agree that the likelihood of the stock trading at a premium is even smaller.

The qualified shares of GBTC are quoted on the OTC Markets Group. The price of these shares fluctuates based on the value of Bitcoin, either at a premium or a discount.

• Old road, new bridge Mind Network’s Zero Trust Bridge (ZTB)
• What does the reversal of OpenAI’s power struggle reveal?
• Robots, terminals, and LLM – The encrypted user experience is gradually becoming inward.

According to data from YCharts.com, since February 2021, the GBTC shares have not traded at a premium. Instead, the discount reached its highest level of 46% in January, according to the data.

According to the latest data, the discount narrowed to around 8% last Friday, reflecting increased investor confidence in the potential approval of a Bitcoin exchange-traded fund (ETF). After winning a legal victory against the U.S. Securities and Exchange Commission (SEC), Grayscale is working to convert GBTC into an ETF, a move the company says will essentially eliminate the current discount on its stock.

Historically, the discount has varied with changes in the price of Bitcoin.

According to Matteo Greco, an analyst at Fineqia International, last week’s drop in the price of Bitcoin to around $35,700 coincided with the news of Binance and its CEO’s guilty plea. However, Greco noted in a research report on Monday that the impact of this drop was offset by clear information regarding regulatory actions concerning the exchange. This brought what he called a “stabilizing recovery” to the market.

As of Monday noon Eastern Time, the price of Bitcoin (BTC) was around $37,500, down 0.4% in the previous 24 hours.

“Any news related to settlements between law enforcement and digital asset service providers plays a crucial role in bridging traditional finance and digital assets, increasing the possibility of capital inflows from traditional financial investors,” Greco added in the research report.

Will the discount turn into a premium?

Chase White, Senior Research and Policy Analyst at ComLianGuaiss Point Research & Trading, said there is still uncertainty regarding when the SEC will allow the Grayscale Bitcoin Trust (GBTC) to convert into an exchange-traded fund (ETF). In the absence of any concrete information on this prospect, he said that the discount on GBTC may continue to remain at high single-digit to low double-digit levels relative to the net asset value.

“This is because there is still a risk of conversion not being approved,” he pointed out. “If the discount becomes too low or even turns into a premium, traders who expect the discount to shrink will sell their positions because the trade is over, and they know that the premium will be eliminated upon conversion, just like the discount.”

Ark Invest, the fund firm, recently sold shares of GBTC – specifically, on November 24th, it reduced its holdings of the trust by 94,624 shares from its Ark Next Generation Internet ETF (ARKW).

Financial futurist Dave Nadig of VettaFi stated that there is “no mechanical reason” for the premium in GBTC trading.

Nadig said, “If any, I would expect outflows when the premium approaches, as there are no redemptions, which means bigger discounts.”

Greco said that the only possible way for the GBTC discount to disappear completely would be for other fund issuers to obtain regulatory approval to launch physically-backed Bitcoin exchange-traded funds (ETFs). The U.S. Securities and Exchange Commission (SEC) plans to rule on such proposals made by Ark Invest and 21Shares before January 10th.

Greco pointed out, “This way, clients will almost be able to be certain of approving the conversion of GBTC, which basically means a strong possibility of buying bitcoin at a lower price than the market price.”

He added that when avenues for gaining exposure to bitcoin are limited, GBTC has traded at a premium. Investors have found alternative methods over the past three years or so.

White stated, “Even if the opportunities for GBTC to trade at a premium are small, we believe it will also be short-lived. Traders may sell their positions.”

We will continue to update Blocking; if you have any questions or suggestions, please contact us!