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Grayscale trust discounts keep shrinking — here’s why

source-logo  blockworks.co 10 November 2023 23:17, UTC

The discounts at which investors pay for shares of Grayscale’s bitcoin and ethereum trusts have shrunk slowly but surely, reflecting one way optimism around spot crypto ETF approval.

Shares of the Grayscale Bitcoin Trust (GBTC) were trading about 11.3% below its net asset value Thursday, nearly matching the 11% discount seen on Oct. 20, according to YCharts.com.

Oct. 20 represented the first time it was in that 11% neighborhood since November 2021, when bitcoin’s price hit an all-time high of roughly $69,000. The GBTC discount was as high as about 48% as recently as December 2022, the YCharts data shows.

GBTC is not easily available to everyone. Eligible shares are quoted on the OTC Markets Group, and the value at which those are sold has fluctuated in the form of sometimes steep premiums and discounts.

Bitcoin price drops, for example, have in recent years led to a decline in GBTC demand. This leads to the Trust’s shares trading at substantially lower values compared to the actual worth of its underlying bitcoins.

Recently, industry sentiment has shifted, with many observers growing more confident that the US Securities and Exchange Commission will eventually greenlight an exchange-traded fund (ETF) that directly holds Bitcoin.

Read more: Traders weigh how to play narrowing GBTC discount

Grayscale is working on converting GBTC to an ETF — a move the firm has said would essentially get rid of the current discount on its shares.

Asset management giant BlackRock filed for a spot bitcoin ETF in mid-June — sending GBTC’s discount from about 42% to as low as about 25% in the span of a month. The discount substantially shrunk again to roughly 18% in late-August after judges ruled the SEC denying GBTC’s conversion to an ETF was unlawful on the grounds it gave.

“The narrowing in discount confirms the increased confidence of investors concerning the possibility for a future conversion of the trust in an ETF,” Fineqia International research analyst Matteo Greco said in a September research note.

The SEC last month opted not to appeal Grayscale’s court victory. Also in October, a media report falsely claimed the SEC had approved a spot bitcoin ETF, sending bitcoin’s (BTC) price up. Fund issuers have been filing amendments to their proposals, signaling apparent dialogue with regulators.

Read more: Is bitcoin’s ETF-fueled rally to $35K premature? Well, maybe

Thus, the discount has remained at levels lower than seen in much of the past few years. Bitcoin’s price was nearly $37,160 at 11:15 pm ET Friday — up nearly 8% in the last week.

While GBTC’s discount has fallen, so too has that of the Grayscale Ethereum Trust (ETHE).

ETHE’s discount hit about 16.4% on Thursday — the lowest since March 2022, YCharts data indicates. This is substantially down from about 56% in June and as high as roughly 34% as recently as September.

Grayscale moved on Oct. 2 to convert its Ethereum Trust to a spot ether fund.

More recently, BlackRock followed up its bitcoin ETF filing with an ether-focused proposal — following the lead of other fund issuers.

Ether’s (ETH) price was about $2,080 at 3:15 pm ET Friday — up 15% from seven days ago.

“If act one is a spot bitcoin ETF, then act two is a spot Ethereum ETF,” Anchorage Digital president Diogo Mónica said in a Thursday statement. “A spot Ethereum ETF would have a similar impact as a bitcoin counterpart, providing a regulated and accessible wrapper for institutions and consumers to participate in the ETH ecosystem.”