Grayscale Investments’ recent court victory over the US Securities and Exchange Commission (SEC) has been a shot of good fortune for the beleaguered Grayscale Bitcoin Trust (GBTC).
Having traded at a near-50% discount to its net asset value just months ago, GBTC, aka the world’s largest bitcoin-only investment vehicle with a $17.4 billion NAV, surged more than 20% on the over-the-counter markets on Tuesday.
Closing at $20.56 per share still places GBTC at a discount to NAV, albeit a much narrower 18%.
As a closed-ended fund, GBTC’s share price is determined by supply and demand rather than its underlying assets (i.e. bitcoin).
This structure has been a problem for GBTC investors who have seen their shares tank in value as sentiment soured on the crypto markets.
Without the ability to cash out, investors have been left with a bag of diminishing value.
To alleviate this, Grayscale has been trying in vain to convert GBTC into an exchange-traded fund (ETF) on the spot market.
Such a structure would allow GBTC shares to return to their NAV through arbitrage.
Grayscale Bitcoin Trust (GBTC)’s premium and discount over time – Source: grayscale.com
Securities regulator the SEC has refused to cooperate with Grayscale on grounds that bitcoin spot markets are rife with fraud and manipulation.
However, the US courts on Tuesday may have strongarmed the SEC into conceding defeat.
In a ruling, the District Court of Columbia highlighted that Grayscale's bitcoin ETP closely mirrors the previously sanctioned bitcoin futures ETPs from a regulatory standpoint.
Circuit Judge Rao pointed out that the SEC did not provide a clear rationale for approving two bitcoin futures ETPs while rejecting Grayscale's bitcoin ETP.
“In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale’s petition for review and vacate the Commission’s order,” the judge stated.
Though this does not 100% guarantee victory for Grayscale, it has significantly increased the likelihood that spot-bitcoin ETFs are coming to the US stock exchange.