‘Grayscale discount’ widens to record 43% as FTX contamination spreads

Shares of the Grayscale Bitcoin Trust (GBTC), the world’s largest publicly traded crypto fund, are trading at a new record 43% discount to the price of the underlying bitcoin (BTC).

Crypto analysts are speculating as to why, but the added pressure comes after Genesis Global Capital, a branch of Digital Currency Group (DCG), owner of Grayscale Investments, which manages GBTC, announced this week that it would end customer withdrawals from its loans. discontinued unit – due to the fallout from the collapse of Sam Bankman-Fried’s FTX crypto empire. (CoinDesk is an independent subsidiary of Digital Currency Group, better known as DCG.)

Grayscale Investments assured investors Wednesday that the Genesis was “not a counterparty or service provider to any Grayscale product” and that Grayscale products would continue to operate “business as usual.”

GBTC shares have not traded at a premium to the underlying bitcoin since March 2021, according to Coinglass data. fund in an exchange-traded fund.

GBTC is an investment vehicle that allows US investors to gain exposure to BTC price movements without purchasing the asset itself. Crypto fund Three Arrows Capital was a large holder of GBTC and told Bloomberg in July that premium arbitrage trading was one of the factors leading to its collapse earlier this year.

For some investors, the recent widening of the discount may have made the vehicle even more attractive: Bloomberg reported that Cathie Wood’s Ark Investment Management bought more than 315,000 shares worth about $2.8 million worth of GBTC shares earlier this week.

This week’s move by Genesis has sparked speculation online that Grayscale could change its current strategy, which is to keep the fund afloat while suing the U.S. Securities and Exchange Commission over the agency’s rejection of the ETF conversion.

According to QCP Capital, many observers now expect DCG to “use the most liquid part of the company — Grayscale — to support Genesis and other parts of the business.”

“We had written off a possible sale of GBTC’s BTC assets in our 2022 outlook, although we never expected it to happen under such circumstances,” QCP said in a note Friday.

The friction is that Grayscale would then have to give up rights to a contractual stream of fees, currently 2% of assets under management.

There is also the issue of DCG’s own ownership of GBTC. In October 2021, DCG said in an announcement that it had purchased $388 million worth of GBTC stock.

QCP said that “those who expect GBTC to allow a one-time redemption for Genesis to meet liquidity needs are misguided as this must be done with SEC approval.”

“With all of the SEC’s backlash against GBTC this year, we certainly don’t expect it to happen any time soon,” QCP wrote. .”

Neither Grayscale Investments nor Digital Currency Group responded to CoinDesk’s request for comment.

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