Great news from the Grayscale Bitcoin Trust

In recent weeks, excellent news has also arrived from the Grayscale Bitcoin Trust (GBTC). 

In fact, the price of GBTC shares is recovering a lot in the markets. 

Latest news and price trend of the Grayscale Bitcoin Trust (GBTC)

At the beginning of the year, the price of GBTC shares had dropped to just over $8, after reaching above $55 at the end of 2021.

The decline in 2022 was due to two factors. 

The first, obviously, is the decrease in the price of BTC, since the Grayscale Bitcoin Trust is a passively collateralized fund solely invested in Bitcoin and precisely replicates its price movements.

But to this factor another much more dangerous one had been added: the discount on NAV. 

The NAV (Net Asset Value) of GBTC is the market value of the assets owned by the fund at a certain point in time. Since the fund only owns BTC, its NAV is nothing more than the overall market value of all the BTC it owns. 

Since the market value of Bitcoin fluctuates over time, the NAV of GBTC also fluctuates. 

However, it is not guaranteed that the price variations of the fund’s shares will exactly replicate those of the underlying asset. In fact, the loss in value of GBTC shares in 2022 was greater than that of the Bitcoin market value.

The discount on NAV

In fact, during 2022 the price of the fund’s shares fell by 75%, while the price of Bitcoin fell “only” by 64%. 

This is because the selling pressure on GBTC shares was higher compared to the selling pressure on BTC, and because GBTC shares are not redeemable. 

In fact, if GBTC shareholders could redeem their shares for the underlying asset, it would not be convenient to sell them at a price lower than that of Bitcoin, but it would be convenient to convert them into Bitcoin and then sell them at full price. 

The difference between the market capitalization of the fund and its NAV is called the NAV discount if it is negative, or premium if it is positive. Market capitalization, as usual, is the product of the number of shares issued multiplied by their market price. 

During 2022, the discount on GBTC shares’ NAV has dropped from -19% to -48%, making it very evident that there was a real mass sell-off taking place. 

In other words, at some point the price of GBTC shares was half of what it should have been, if they were redeemable. 

But in the course of 2023 the trend has reversed. 

The boom of 2023

Between June and August of this year, in fact, two events occurred that completely overturned this dynamic. Moreover, these are two events not connected to the price fluctuations of Bitcoin. 

First of all, in June it was reported that BlackRock had applied for the issuance of an ETF on Bitcoin spot. This caused the discount on GBTC’s NAV to rise from -44% to -26%. 

The reason is not trivial. 

In order to try to realign the market capitalization – and therefore the stock price – of GBTC with its NAV, Grayscale has requested to convert the fund into an ETF. In fact, in this way the shares would become redeemable. 

The SEC refused, but when even BlackRock made a similar request, the markets began to believe that the SEC was wrong. In fact, Grayscale had sued the same American agency arguing that it could not reject their request. 

The fact is that BlackRock has an average approval rate of over 99% for its ETF issuance requests, so it seemed highly unlikely that their request would be rejected. At that point, the SEC could have ended up having to approve Grayscale’s request as well.

All of this became extremely evident when, at the end of August, a court ruled in favor of Grayscale and against the SEC, effectively stating that the request to convert GBTC into an ETF should be approved. 

At that point, the discount on the NAV of the Grayscale Bitcoin Trust further decreased, rising from -24% to -17%. 

News from the past weeks about the Grayscale Bitcoin Trust

In recent weeks, the chances of the SEC approving both BlackRock’s and Grayscale’s requests have further increased, causing the discount on GBTC’s NAV to rise as well. 

In recent days it had risen to -8%, while today it stands at -10%, probably also due to the strong increase in the price of Bitcoin. 

At some point, this discount could disappear, also because for example in 2020 it was higher than zero. In other words, for the first two abundant years there was no consideration for the NAV, but even a premium, because the fund capitalized more than the NAV. 

With the conversion to ETF on Bitcoin spot, this discount, or premium, should almost be eliminated, as the shares will become redeemable. 

Furthermore, as of today GBTC is not exchange-traded, but only OTC, while when it becomes an ETF it will also be exchange-traded. 

In the course of 2023, the price of GBTC shares has increased by 326%, while the price of Bitcoin is at +164%. A good part of this difference is due to the significant reduction in the discount on NAV. 

In particular, from the end of September until now, GBTC shares have recorded a remarkable +93% in just over two months, making them one of the best-performing assets in the financial markets. 

In these first days of December, it has recorded a +16% in less than a week, and this upward trend could continue further, in case the Bitcoin rally doesn’t stop.