Grayscale Bitcoin Trust Discount Narrows to 8-Week Low as DCG Faces Pressure

The Grayscale Bitcoin Trust (GBTC) rally in early 2023 outperformed that of its Bitcoin underlyings (), so drastically reducing its haircut to net asset value (NAV).

The closed-end trust with more than $10 billion in assets under management is up 17.5% to begin the year versus about a 5% advance in the price of bitcoin to its current $17,300. Which reduced the gbtc haircut to the net asset value to around 38%, the lowest in eight weeks, after ending 2022 with a 45% haircut. The discount touched a record 50% in December.

The reduction in net asset value was initiated in 2022 in the 20% zone, and before the beginning of 2021, it had been the norm for several years for GBTC to trade at a premium that was often substantial at net asset value.

“The GBTC discount compressing may be the product of traders betting on either the complete unwind of the trust or Grayscale being forced to enable full/partial redemptions,” said Sean Farrell, responsible for Fundstrat's digital asset strategy. However, it is difficult to draw conclusions at the moment, as volumes are so low and the market so fluid."

Grayscale had applied to convert the GBTC into an exchange-traded fund that would theoretically provide a path for traders to arbitrage away the discount, but the U.S. Securities and Exchange Commission rejected the proposal earlier this year.

Immediately following the decision, bring a grayscale action against the second, arguing that the agency's logic in rejecting the claim was "erroneous" and "applied in an inconsistent manner". The matter is before the court.

Investors in the trust have recently put increasing pressure on Grayscale parent Digital Currency Group (DCG), headed by Barry Silbert, to address the massive discount. There are calls from a number of players in the crypto industry to wind down the trust, or at least in shades of grey to enable buybacks, which would enable gbtc investors to realize the full value of their shareholdings in a timely manner. Hedge fund Fir Tree late last year filed a lawsuit against Grayscale, calling for the company to lower its fees and resume redemptions as a way to narrow the discount.

'Ironically, any movement to navigation helps Barry and the team, as it is understood that they have substantial gbtc and ethe assets, that might be sold for cash,' said Farrell.

Possibly in action: positioning of the investor towards the beginning of the year.

Having grown in a number of one-way crypto transactions (mostly downwards) last year, traders could hedge some of those bets that 2023 starts. Having grown in a number of one-way crypto transactions (most of the time in decline) last year, traders could hedge some of these bets as 2023 begins.

At the same time as the transition of the GBTC towards the beginning of the year, There have been significant rallies in cryptoexchange stocks COINBASE (COIN) and Bitcoin Minor Digital Marathon (MARA) and Riot (RIOT) platforms – Three of them fell by at least 75% in 2022.