Started by Bitcoin, Oct 06, 2022, 08:04 am
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The Grayscale Bitcoin Trust (GBTC) has made a name for itself in the public markets as not only the first-ever publicly traded trust underlined by a cryptocurrency, but it is also the largest bitcoin trust in the world. However, Grayscale has not had an easy go of it in the last as it had been trading at a discount. This discount has continued to widen through 2022 and has reached a new all-time high, presenting unique opportunities.
The Grayscale Bitcoin Trust (GBTC) had been seeing a steady decline in its discount to its NAV in the first two quarters of 2022, but that changed as the third quarter drew to a close. September has been a historically bearish month for the crypto markets, and the GBTC also felt the heat.
Last week, the GBTC saw a jump in its discount to NAV and touched a new low of 36.2%. This means that the trust is trading at an implied BTC price of $12,500, much lower than the spot prices for the digital asset, which remains above $20,000 as of the time of this writing.
This presents a unique opportunity for investors to gain exposure to the digital asset at a lower than spot price range, but it also raises the question of why Wall Street is not dipping its toes into this. Arcane Research speculates that there could be two reasons for this. It is either Wall Street investors overlooking the opportunities that the trust presents at this point, or they do not believe in having any long-term exposure to bitcoin at this time.
However, if the Fed ends up dropping interest rates and the dollar begins to lose some of the strength it had garnered in the last couple of months, then bitcoin may see a remarkable recovery in price. This, in turn, would cause a narrowing of the GBTC discount, leading to profits for investors.
The GBTC has remained a close-ended trust for the duration of its lifetime, and Grayscale continues to collect its 2% annual management fee. Since the SEC had rejected Grayscale's bid to turn the trust into an ETF, the market is expecting that the trust will remain close-ended for the next three decades, hence the large discount.
If this is the case and GBTC does remain close-ended till 2045, then Grayscale would have accumulated hundreds of thousands of Bitcoin in fees during this time. To be precise, the trust would see 235,000 BTC from its 2% management fee.
However, this is dependent on if the SEC grants the approval for the trust to be turned into an ETF. Grayscale has already dragged the regulatory body to court over its rejection of its ETF filing. If approved, Grayscale would essentially have the first Spot Bitcoin ETF in the United States.
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