Grayscale’s Bitcoin Investment Trust (GBTC), which is solely invested in bitcoin, is priced at a near-record low discount to its net asset value (NAV).
Investors in the trust have seen their shares fall more than 70% year to date, even though bitcoin’s value has only dropped 60%, with the financial instrument’s discount to NAV trailing -37%.
Although GBTC is meant to track the price of bitcoin, this has rarely been the case, though not always for the worse.
GBTC historically traded at a premium to bitcoin until March 2021, meaning shares were outperforming the trust’s sole underlying asset. But shares have since continued to fall.
GBTC flipped from premium to discount in early 2021 – Source: grayscale.com
Even though US-based Grayscale’s GBTC trust is the largest of its kind, its star has waned since bitcoin-linked exchange-traded funds (ETFs) have become available in other countries.
GBTC’s widening discount is due to the trust’s shares being irredeemable, so shares cannot be burned in response to supply and demand.
Investors have instead opted to sell their Grayscale shares at a discount in what Ark Investment Management head Cathie Wood recently described as a “fire sale” in the What Bitcoin Did podcast.
Given GBTC’s massive discount, investors could be tempted to buy the dip, which is what Cathie Wood seems to have done, despite fundamentals being shaky at best.
Ark just snapped up 273,000 shares in GBTC worth over US$2.5mln, marking the fund’s first purchase since July 2021, according to the fund’s webpage, bringing the fund’s total GBTC holdings to over six million shares.
Wood blamed GBTC’s heavy discount on the misguided assumption that the trust could convert into an exchange-traded fund (ETF) in the near future.
Grayscale has been at the forefront of a campaign for regulatory approval of US-based bitcoin spot ETFs, which would give investors exposure to bitcoin’s price through the stock market.
Under bitcoin hawk Gary Gensler, The Securities and Exchange Commission (SEC) has so far resisted calls to allow bitcoin spot ETFs, despite Canada, Europe and other countries taking a more progressive stance.
A “different administration” at the SEC is needed before US-based bitcoin ETFs become a reality, reckons Wood.
Evidently, that’s what she’s banking on, since it hasn’t stopped her from buying the GBTC dip, just when the price of bitcoin tanked following the collapse of former market-leading digital asset exchange FTX.
As the saying goes: "The time to buy is when there's blood in the streets."