GBTC Discount by Grayscale Hits Zero: First Since February 2021

• Grayscale Bitcoin Fund Discount Vanishes Amid Transition to ETF
• Shrinking Discount and Rising Sentiment
• GBTC and NAV Convergence: A Positive Sign
• Fund Structure and Its Implications
• Transition to ETF Brings Liquidity
• The Future for Grayscale's Ethereum Trust

Grayscale Bitcoin Fund Discount Vanishes Amid Transition to ETF

Grayscale's bitcoin fund (GBTC), recognized as the most substantial bitcoin investment vehicle, has observed its discount to net asset value (NAV) diminish to 0% for the first time since February 2021. This significant change coincides with the recent approval from the U.S. Securities and Exchange Commission (SEC) to morph the fund into a spot bitcoin exchange traded-fund (ETF) which started trading on Thursday morning, along with ten other ETFs.

Shrinking Discount and Rising Sentiment

Since February 2021, the fund was trading at a discount to the price of the Bitcoin$42,260 -0.64% it held. The discount reached a record low of almost 50% in December 2022. However, GBTC's discount to NAV commenced to narrow significantly with the anticipated approval of an ETF last summer and concurrent increasing bitcoin sentiment. Before the SEC's approval to transition the fund into an ETF, the discount hit a low of 5.6% on Monday.

GBTC and NAV Convergence: A Positive Sign

Sean Farrell, head of digital asset strategy at FundStrat, shared that the convergence of GBTC to NAV signifies relief for the industry and symbolizes its progression into a new phase of maturation. He also pointed out how GBTC had caused significant difficulties over the past years for reasons that are clear to those within the industry.

Fund Structure and Its Implications

The reason behind the discount was due to the fund's structure. GBTC functioned similarly to a closed-end fund, meaning it lacked the inherent arbitrage mechanism that allows market makers to create or redeem shares at will. Farrell explained that the bitcoin always existed in the trust, but the absence of a redemption mechanism led to a substantial discount to the underlying asset value. This arrangement resulted in many individual investors underperforming the benchmark, and led to significant credit issues as the product was used as collateral throughout the industry.

Transition to ETF Brings Liquidity

Prior to the transition, liquidity was only accessible over-the-counter in the secondary market. With the fund now converted to an ETF, Authorized Participants can create and redeem ETF shares at NAV, aligning the market price of the ETF to its NAV, according to Matt Kunke, a crypto research analyst at GSR. As a result, the premium/discount will likely only deviate by a few basis points moving forward.

The Future for Grayscale's Ethereum Trust

Farrell also shared his insights on the future of the discounts to NAV on Grayscale's Ethereum$2,315 -2.42% Trust (ETHE), now that the likelihood of a potential spot ether ETF approval has increased. He suggested that it will be fascinating to observe how quickly the discount closes in response to this change.

Edited by Jonathan Stoker