The Grayscale Bitcoin Trust has been one of the biggest victims of the cryptocurrency sell-off.
The $27 billion fund is down nearly 27 percent so far in 2022, more than bitcoin’s nearly 9 percent decline. GBTC closed Tuesday at a record 26.5 percent below the value of its bitcoin holdings, according to Bloomberg data.
GBTC has been plagued by this phenomenon for months. The trust does not allow ETF-style redemptions of shares, so there is no way to adjust the supply of shares as demand changes. As a result, fund stock prices have also fallen significantly as investors divest heavily from cryptocurrencies. This leads to increased share price discounts.
In October last year, Grayscale Investment LLC applied to the SEC to convert GBTC into an ETF, a move expected to quickly fix the discount. But regulators have yet to approve physical-based bitcoin funds.
“GBTC is heartbreaking time and time again as the discount widens. GBTC is basically a binary bet on a physical ETF right now.”
Spectra Markets president Brent Donnelly wrote in a report
After trading at a premium compared to Bitcoin for many years, GBTC first appeared at a discount in February last year, and the number of outstanding shares soared. However, the advent of Bitcoin ETFs in Canada and the first derivatives-based Bitcoin ETF in the U.S. eroded GBTC’s competitive advantage. Grayscale’s parent company, Digital Currency Group, wants to eliminate the discount by buying back GBTC shares.
The dislocation between GBTC and Bitcoin prices has exceeded that of the ProShare Bitcoin Strategy ETF (BITO). Because the fund holds futures contracts, it is prone to tracking errors. Bitcoin rose 1.6% on Tuesday. BITO and GBTC fell 3.3% and 6.4%.