The Grayscale Bitcoin Trust’s transition into an exchange-traded fund (ETF) has marked the end of an era, as its once prominent double-digit discount has vanished. The fund, valued at approximately $21 billion and known as GBTC, now trades at a slight premium of 0.02% to its net asset value, according to data from Bloomberg. This shift represents a significant change from its previous structure, which often saw the fund trading at steep discounts to its underlying holdings.
Previously, GBTC’s substantial premium fueled one of the most popular arbitrage strategies in the cryptocurrency space. Hedge funds would borrow Bitcoin, exchange the coins for GBTC shares, and then sell those shares in the secondary market after a lock-up period. However, this strategy lost its appeal after physically-backed Bitcoin ETFs launched in Canada in early 2021, causing GBTC’s price to plummet below the value of its underlying assets. This downturn contributed to financial distress for firms like Three Arrows Capital in 2022.
Noelle Acheson, a veteran trader and author of the “Crypto is Macro Now” newsletter, described the disappearance of GBTC’s premium as the closure of an unfortunate chapter in crypto’s history. She characterized GBTC’s premium as an example of traders exploiting an inefficient market through leverage, while its subsequent discount served as a reminder of the market’s ability to self-correct.
As an ETF, GBTC now operates with the assistance of authorized participants who create and redeem shares in collaboration with the sponsor, ensuring that the fund’s price aligns closely with its net asset value. A spokesperson for Grayscale emphasized GBTC’s importance as the backbone of the spot Bitcoin ETF market, providing regulated exposure to Bitcoin for a wide range of investors and capital markets participants.
Despite the elimination of its discount, Grayscale continues to hold the admiration of many Bitcoin enthusiasts. Its successful transition to an ETF has been seen as a significant milestone in crypto’s journey towards mainstream acceptance. Grayscale’s victory over the Securities and Exchange Commission (SEC), demonstrated by a judge’s ruling in August that the agency acted capriciously in barring GBTC’s conversion, challenged assumptions about the inevitability of regulating online currencies.
Speculation regarding SEC approval of Bitcoin-related products, spurred by Grayscale’s success, has driven further arbitrage trading opportunities. Traders had begun accumulating shares of GBTC in anticipation of ETF approval, resulting in profits for firms like Ark Investment Management and Saba Capital Management.
However, despite initial optimism, GBTC has experienced significant outflows since transitioning to an ETF. The fund has lost over $5.8 billion in value, while its newly launched competitors have seen inflows. Factors contributing to these outflows include the fund’s relatively high fees, currently at 1.5%, compared to competitors like Fidelity and BlackRock, which will eventually charge 0.25% after a waiver period. Franklin Templeton’s fund boasts the lowest post-waiver expense ratio at 0.19% among spot-Bitcoin ETFs.
While outflows have slowed in recent days, high fees are expected to continue driving withdrawals. According to Stephane Ouellette, co-founder and CEO of FRNT Financial, unless fees are reduced, selling pressure on GBTC is likely to persist over time.
