Do you Really Trust These Bitcoiners

Do you Really Trust These Bitcoiners As Grayscale Bitcoin Trust Looks Cheap, but Isn’t Without Risk.

4 September 2023

Do you really trust these Bitcoiners? Grayscale Bitcoin Trust (GBTC), the world’s largest Bitcoin fund at about $16.3 billion under management, won a major court victory this week, increasing the likelihood it will convert into an exchange-traded fund.

On the other hand, the market is pricing the fund largely as it did before the U.S. Court of Appeals decision. GBTC, for now, trades like a closed-end fund, with a market price that deviates from the value of the Bitcoin it holds. On Aug. 24, GBTC closed at $17.68, a 24.6% discount to the underlying Bitcoin. On Thursday, it closed at a 20.6% discount.

That doesn’t make sense. If an investor can stomach the volatility and is looking for Bitcoin exposure anyway, it is worth betting the discount will close further.

Grayscale has been attempting to turn GBTC into an ETF for years, which would fully eliminate the difference. The Securities and Exchange Commission has routinely denied the applications and those of other fund providers, claiming that the Bitcoin market lacks enough oversight to prevent fraud and manipulation.

Grayscale filed a lawsuit after being denied in 2022, claiming that the SEC improperly rejected its proposal while still allowing Bitcoin futures products such as ProShares Bitcoin Strategy (BITO), whose values are related to the same underlying market.

On Tuesday, three judges selected by presidents of both major parties unanimously agreed with Grayscale. The judgment does not require the SEC to approve the application, but it does limit the agency’s ability to reject it again.

Bloomberg Intelligence analysts, for example, placed the likelihood of the SEC allowing Bitcoin ETFs this year at 75% and the odds of such funds being allowed by the end of 2024 at 95% earlier this week.

There will almost certainly be potholes.

The GBTC discount is likewise no longer available. Earlier this year, the discount was close to 50%. During oral arguments in the Grayscale case, the judges clearly hinted that they were leaning against the SEC, and unexpected applications for Bitcoin ETFs from BlackRock and others compressed the discount even more. So, Do you really trust these Bitcoiners, as a 20% reduction appears to be excessive?

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