The $37.1 billion Grayscale Bitcoin Trust (GBTC) is the world's largest Bitcoin fund and a favorite among financial advisors, mutual funds and ETFs investing client assets in crypto, but it is not a good proxy for actual Bitcoin.
The fund, which invests directly in the cryptocurrency, has been trading at sizable discounts to its net asset value since February 2021 when Purpose Bitcoin ETF launched the first Bitcoin ETF, in Canada, and GBTC began to labor under the weight of excessive share issuance, according to Bobby Blue, senior research analyst at Morningstar.
Between early 2020 and late February 2021, Grayscale filed 35 reports with the SEC indicating the sale of additional shares to accredited investors, Blue wrote in a recent report. Year to date, GBTC has gained 40%, but Bitcoin has doubled in price.
GBTC essentially trades like a closed-end fund, which has no flexibility to create or redeem shares. A Bitcoin ETF, which by its very structure, has that flexibility through its market makers, would provide that flexibility.
Grayscale has an application pending at the SEC to convert its Bitcoin trust to a Bitcoin ETF, but to date, the agency has not approved any spot Bitcoin ETF application among the many it has received over the years.
The SEC has, however, allowed several Bitcoin futures ETFs to trade, which irks Grayscale and its lawyers. The SEC could decide in late December whether the NYSE's application to trade the Grayscale Bitcoin ETF can proceed, according to reports.
Grayscale CEO Michael Sonnenshein told ThinkAdvisor in October that the SEC, in approving a Bitcoin futures ETF, was "inherently giving a blessing to the entire Bitcoin market" because the derivative Bitcoin futures market and Bitcoin spot market are "inextricably tied to one another."
Earlier this week, the company's attorneys at Davis Polk acknowledged in a letter to the SEC that Grayscale Bitcoin Trust shares "usually trade at discounts below or premiums over the net asset value of the Bitcoin it holds, and these discounts and premiums have at times been substantial." They pushed for approval of a Grayscale spot Bitcoin ETF.
