Grayscale received the regulatory green light to convert its flagship product into an ETF on Wednesday.

Grayscale’s bitcoin fund (GBTC), the largest bitcoin investment vehicle, has seen its discount to net asset value (NAV) shrink to 0% for the first time since February 2021.

This comes as the company got the all clear from the U.S. Securities and Exchange Commission on Wednesday to convert the fund into a spot bitcoin exchange traded-fund (ETF), which began trading on Thursday morning (alongside 10 other ETFs).

The fund had traded at a discount to the price of the Bitcoin it held since February 2021 and hit record lows of nearly 50% in December 2022. GBTC’s discount to NAV began to narrow significantly as the expectations of an ETF approval surfaced last summer and also on rising bitcoin sentiment.

Prior to the SEC’s approval to convert the fund into an ETF, the discount had fallen to as low as 5.6% on Monday.

“GBTC converging to NAV is a huge relief for the space and a symbol of the industry’s move into a new stage of maturation,” said Sean Farrell, head of digital asset strategy at FundStrat.

“This product GBTC caused a lot of unnecessary pain over the past few years for obvious reasons,” said Farrell.

Fund Structure

The reason behind the discount was due to the nature of the fund. GBTC acted similar to a closed-end fund, which meant it lacked the inherent arbitrage mechanism that enables market makers to create or redeem shares at their discretion.

“The bitcoin always existed in the trust but the lack of a redemption mechanism led to the massive discount to the underlying asset value,” explained Farrell. “Most importantly this hurt a lot of individual investors as they underperformed the benchmark but also led to massive credit blowups since the product was used as collateral throughout the space.”

Previously, liquidity was only available over-the-counter in the secondary market, but now that the fund has been converted to an ETF, Authorized Participants are able to create and redeem ETF shares at NAV, tethering the market price of the ETF to its NAV, said Matt Kunke, crypto research analyst at GSR, in an interview with CoinDesk.

“As a result, the premium/discount will likely only vary by a few basis points from par moving forward,” added Kunke.

Looking forward, Farrell noted that it will be interesting to see how the discounts to NAV on Grayscale’s Ethereum Trust (ETHE) performs now that the probability of an eventual spot ether ETF approval has risen.

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Data shows the discount fell to as low as 5.6% on Monday, reaching a level previously seen in June 2021.

The discount on the Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin (BTC) fund, has slipped to its lowest level since April 2021, ahead of an expected conversion to a spot bitcoin exchange-traded fund (ETF).

Data shows the discount fell to as low as 5.6% on Monday, reaching a level previously seen in June 2021. The fund has traded at a discount since February 2021 – reaching a high of nearly 50% in December 2022 – but expectations of an ETF approval and rising bitcoin sentiment have steadily narrowed the discount.

It closed Monday at $39. Each GBTC share holds $41.86 in bitcoin as of Tuesday. The trust has no built-in market mechanism to keep the GBTC share price trading close to the underlying value of the bitcoin – opening up discounts and premiums that traders can use as part of a trading strategy.

As of Tuesday, GBTC is one of the only ways for stock traders in the U.S. to gain exposure to the price movements of bitcoin without the need to purchase the actual cryptocurrency.

The discount could be taken as a bearish indicator because it could signal a waning interest in bitcoin among traders, while a premium could signal demand for bitcoin.

Meanwhile, Grayscale is currently awaiting a decision from the U.S. Securities and Exchange Commission (SEC) on uplisting the trust as an ETF, alongside 12 other players.

Grayscale has dropped its 2% management fee to 1.5% as part of its proposed uplift to a spot bitcoin ETF, according to an updated S3 filing on Monday. It has over $27 billion in assets under management (AUM).

If approved, it will be the most expensive offering for investors. Potential issuers such as BlackRock intend to offer their bitcoin ETF at 0.20%, rising to 0.30%, while crypto native fund manager Bitwise is charging the least – 0.24% after a 6-month period of no fees.

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Grayscale operates the Grayscale Bitcoin Trust (GBTC), which has $10 billion-plus in assets under management.

Digital Currency Group (DCG) has started selling holdings in several investment vehicles run by its subsidiary and digital assets manager Grayscale at a steep discount, according to a Financial Times report citing U.S. securities filings.

Grayscale operates the Grayscale Bitcoin Trust (GBTC), which has $10 billion-plus in assets under management and was late last year trading at a record discount to net asset value, although that discount has fluctuated recently. Grayscale, Genesis and CoinDesk share the same parent company in DCG.

On Jan. 20 this year, Genesis Global Holdco LLC, the holding company of cryptocurrency lender Genesis Global Capital, filed for Chapter 11 bankruptcy protection in New York, after being hit by the crypto contagion of 2022, which was exacerbated by the implosions of hedge fund Three Arrows Capital and crypto exchange FTX.

On Monday, CoinDesk reported that DCG and Genesis reached an agreement with a key group of creditors intending to sell its subsidiary Genesis’ crypto trading business as well as its lending arm, which is restructuring through bankruptcy.

According to the FT report citing filings, DCG’s recent share sales have focused on the ethereum fund, where the group has moved to sell about a quarter of its stock to raise as much as $22M in several trades since January 24. The company is selling at about $8 per share, despite each share’s claim to $16 of ether.

“This is simply part of our ongoing portfolio rebalancing,” DCG said., according to FT.

A Bernstein report had earlier said saving Grayscale would come at a cost for DCG.

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The shares first slipped into the discount category in February 2021 primarily due to alternatives like ETFs becoming available in Canada and Europe.

While bitcoin’s (BTC) bear market has paused, the shares in Grayscale Investment’s bitcoin trust (GBTC) are yet to find relief.

The discount in GBTC shares relative to the underlying cryptocurrency held in the fund widened to a record 36.2% on Sept. 30, according to data tracked by Delphi Digital. GBTC shares slipped into the discount category in February last year and have traded lower than the fund’s net asset value (NAV) ever since.

The GBTC is one of the most widely tracked funds in the crypto market, as the trust has been the preferred venue for institutional investors to gain exposure to bitcoin without having to purchase or take custody of the cryptocurrency.

So, it’s natural to assume that the continued widening of the GBTC discount stems predominantly from the absence of institutional demand. However, that’s not necessarily true and persistent discount at least partly reflects the increasing availability of alternatives like exchange-traded funds (ETF).

Grayscale and CoinDesk are independent subsidiaries of the Digital Currency Group (DCG).

“Some suggest that the increasing discount illustrates subsiding institutional interest in bitcoin, while others point to a wider offering of ETFs or alternative vehicles for BTC investment,” Andrew Krohn, an analyst at crypto research firm Delphi Digital wrote to clients on Monday.

Grayscale and CoinDesk are independent subsidiaries of the Digital Currency Group (DCG).

The Grayscale bitcoin trust is a close-ended fund, meaning BTC deposits remain locked forever. As of writing, the trust holds BTC 635,240, worth over $12 billion. That’s roughly 3.3% of bitcoin’s circulating supply.

Accredited investors can buy GBTC shares directly at the NAV by depositing bitcoin or U.S. dollars. The firm takes care of the custody and charges an annual management fee of 2% to investors. GBTC shares can be sold in the secondary market after a lock-in period of six months. So if prices fall within six months, all holders can do is sit and watch the value of their investment tank. The now-defunct crypto hedge fund Three Arrows Capital was one of the largest holders of GBTC.

The GBTC shares consistently traded at a premium before 2021. So, accredited investors purchased GBTC at NAV and sold those shares at a premium six months later, pocketing the difference. However, the so-called carry trade lost its shine once the premium flipped to discount in February 2021.

Besides, the launch of relatively cheaper ETFs in Canada, Europe and the U.S. later that year took away a significant chunk of demand from GBTC. While Grayscale doesn’t allow redemptions and an ETF allows the market maker to create and redeem shares at will. So, traditional market funds and institutions prefer ETFs over close-ended funds like the Grayscale Bitcoin Trust.

In October last year, Grayscale filed with the U.S. Securities and Exchange Commission to convert the trust into a spot-based ETF. However, the regulator rejected Grayscale’s application in June this year, stating that the fund manager failed to answer the SEC’s questions about preventing market manipulation.

According to Krohn, the discount will evaporate quickly should the trust get a go-ahead from the regulator. However, as of now, investor interest in taking bullish exposure via GBTC remains at an all-time low.

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The Grayscale Future of Finance exchange-traded fund will list on the London Stock Exchange, Deutsche Börse and Borsa Italiana.

Grayscale Investments plans to list its first exchange-traded fund (ETF) in Europe, offering investors exposure to companies in finance, technology and digital assets.

The Grayscale Future of Finance UCITS ETF (GFOF) will list on the London Stock Exchange (LSE), the Deutsche Börse and Borsa Italiana and will be available to investors across Europe. Trading in the ETF is set to start tomorrow, a company representative said.

The ETF will track the Bloomberg Grayscale Future of Finance Index, which was launched in January to track the performance of financial services and technology companies in the digital economy. They include PayPal (PYPL), Coinbase Global (COIN), Block (SQ), Robinhood Markets (HOOD) and Argo Blockchain (ARB).

CEO Michael Sonnenshein said in April that the digital asset manager wanted to enter the European crypto fund market, where there are already over 70 exchange-traded products with a total of $7 billion in crypto and related assets. The new company-focused ETF will join incumbents such as the VanEck Vectors Digital Assets Equity ETF and Melanion Capital’s BTC Equities Universe ETF.

A similar ETF, which has been listed in the U.S. since February on the NYSE Arca, was designed to broaden Grayscale’s offering away from direct investment in digital assets, offering investors exposure to companies whose performance is indirectly linked to the crypto market.

Grayscale is currently seeking to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF in the U.S. Markets regulator the Securities and Exchange Commission (SEC) has yet to approve such a product despite having received dozens of applications in recent years.

Grayscale is a subsidiary of Digital Currency Group, which is also the parent company of CoinDesk.

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