“Grayscale discount” widens to 43% as FTX transmission spreads

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

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

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

GBTC shares have not traded at a premium to the underlying bitcoin since March 2021, according to Coinglass data, and the discount has widened this year along with concern in crypto markets and the US Securities and Exchange Commission’s refusal to allow the fund to convert into stock exchange 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 arbitrage trading of the premium was one of the factors that led 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 In connection that Grayscale may change its current strategy of holding onto the fund while simultaneously suing the US 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 business – Grayscale – to support Genesis and other parts of the business.”

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

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

There is also the issue of DCG’s equity in GBTC. In October 2021, DCG said in a statement that it bought $388 million worth of GBTC shares.

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

“With all the SEC opposition to GBTC this year, we certainly don’t expect that to happen anytime soon,” QCP wrote. “On the bright side, this also means a small chance of a large one-time BTC selling pressure from this.”

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

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