According to Bloomberg News, one of the greatest cryptocurrency casualties selloffs is Grayscale Bitcoin Trust. The $27 billion funds (ticker GBTC) nosedived by nearly 17% till date in 2022, exceeding 9% decline of Bitcoin. As a consequence, the price of GBTC closed at 26.5%, below the Bitcoin value it held Tuesday, thereby making the GBTC’s so-called discount wider and to record levels, as per data from Bloomberg.
This is a dynamic that has GBTC plagued for several months now. The trust does not permit share redemptions that are similar to ETF or exchange-traded funds, and it means that the supply of the shares cannot be destroyed or created under changing demands. As a result, it was seen that the shared tumbled as investors kept away from the cryptocurrencies negating the discount offered at the share price.
Grayscale Investment LLC had applied before the SEC or Securities and Exchange Commission in October so that GBTC could be converted into an exchange-traded fund, which is presumed to repair the discount rather faster. However, regulators still have to approve a Bitcoin fund that is physically backed.
According to Brent Donnelly, who is working as the president of Spectra Markets, said in a report GBTC has been breaking hearts every time there is a widen in the discounts. Donnelly went on to say that GBTC can be said to be a binary bet on physical ETF as of now.
Bloomberg News reports that GBTC first dropped into a discount last year in February with the number of outstanding shares skyrocketing, after trading for years at a premium to Bitcoin. However, it was observed that the competitive advantage of GBTC was eroded as there was a launch of Bitcoin exchange-traded funds in Canada and derivatives-backed Bitcoin exchange-traded funds in the US. The parent company of Grayscale, Digital Currency Group, sought to buy back the shares of GBTC so that it could repair the discount.
Bloomberg News also reports that there has been a dislocation of GBTC’s price from Bitcoin to a greater degree in comparison to the ProShares Bitcoin Strategy (BITO), which is being assumed to track the vulnerability of tracking errors, provided it can hold futures contracts. On Tuesday, Bitcoin rallied at 1.6%, GBTC and BITO dropped 6.4% and 3.3% respectively.
