More woes for grayscale investors as biggest Bitcoin fund hits new all-time low

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There does not appear to be a bottom for the Grayscale Bitcoin Trust (GBTC), as shares of the largest industry players Bitcoin fund reached a record discount of 35.18% last Friday.

GBTC shares allow investors to trade shares in trusts that hold pools of Bitcoin, with each share tracking the price of Bitcoin. The goal is to give traditional investors exposure to the leading cryptocurrency without the need to purchase and hold the asset itself.

Since its inception in September 2013, GBTC has historically traded at a high premium to spot Bitcoin prices. For years, this has been a rather attractive option for investors, even despite the hefty 2% annual management fee.

However, sentiment turned negative and started trading at a discount to spot Bitcoin prices in late February last year after several Bitcoin ETFs launched in Canada.

GBTC discount on BTC/USD spot prices. Source: Y-Charts

A Net Asset Value (NAV) discount may seem like a good deal because it allows investors to buy “shares” of Bitcoin below the actual market value. However, there is a catch: there is no redemption mechanism for GBTC.

This means that the arbitrage trade of buying the discounted stock, buying it back for the underlying asset (much like how an ETF works), then selling the underlying at a profit is closed. All GBTC holders are simply stuck with a rotting asset or forced to sell at a loss (depending on when they got their shares back).

According Grayscale’s websiteGBTC currently has $11.9 billion in assets under management.

Bitcoin ETF: mission impossible?

Grayscale has long maintained that the best way to solve the problem is to convert its GBTC product to a Bitcoin ETF, an exchange-traded fund backed by physical Bitcoin, as this would help bring its product back to the value of the underlying.

However, the US Securities and Exchange Commission (SEC) is standing in the way of the company, which has yet to greenlight a spot Bitcoin ETF for US investors, despite having approved several ETFs to Bitcoin term.

The SEC rejected Grayscale’s request to convert GBTC to a Bitcoin ETF in June, saying it was not doing enough to protect investors from “fraudulent and manipulative acts and practices.”

The decision prompted Grayscale to sue the regulator, with CEO Michael Sonnenshein saying the investment firm will continue to mobilize all of its resources to defend its investors and the “fair regulatory treatment of bitcoin investment vehicles.”

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