Grayscale’s bitcoin fund (GBTC), the largest bitcoin investment vehicle, has seen its discount to net asset value (NAV) decrease to 0% for the first time since February 2021.This occurs after the U.S. Securities and Exchange Commission granted the company permission on Wednesday to transform the fund into a spot bitcoin exchange-traded fund (ETF), which started trading on Thursday am (with ten other ETFs).
Since February 2021, the fund has traded below the value of the Bitcoin it owned, and in December 2022, it reached all-time lows of almost 50%.Due to growing bitcoin sentiment and the emergence of anticipation for an ETF approval last summer, GBTC’s discount to NAV started to decrease dramatically.
Before the fund’s conversion into an ETF was approved by the SEC, the discount had dropped as low as 5.6% on Monday.
“GBTC converging to NAV is a huge relief for the space and a symbol of the industry’s move into a new stage of maturation,” said Sean Farrell, head of digital asset strategy at FundStrat.“This product GBTC caused a lot of unnecessary pain over the past few years for obvious reasons,” said Farrell.The nature of the fund was the cause of the discount. Due to its closed-end fund-like behavior, GBTC lacked the built-in arbitrage mechanism that allows market makers to create or redeem shares at will.
“The bitcoin always existed in the trust but the lack of a redemption mechanism led to the massive discount to the underlying asset value,” explained Farrell. “Most importantly this hurt a lot of individual investors as they underperformed the benchmark but also led to massive credit blowups since the product was used as collateral throughout the space.”
According to Matt Kunke, a crypto research analyst at GSR, in an interview with CoinDesk, “authorized participants can now create and redeem ETF shares at NAV, tethering the market price of the ETF to its NAV.” Previously, liquidity was only available over-the-counter in the secondary market.
“As a result, the premium/discount will likely only vary by a few basis points from par moving forward,” added Kunke.
In the future,According to Farrell, it will be fascinating to watch how Grayscale’s Ethereum Trust (ETHE) discounts to NAV behave now that there is a greater chance that a spot ether ETF would eventually be approved.
“Chances are the discount closes quickly,” said Farrell.