Stay away from Grayscale Bitcoin Trust despite discount narrowing to 10-month low

Key Takeaways

• The Grayscale Bitcoin Trust (GBTC) has persistently traded at a discount to its net asset value
• The discount has narrowed to its lowest mark since September off hope the fund is more likely to be converted to an ETF
• The entire GBTC debacle represents the mess that is the institutional regulatory climate in the US
• Spot ETFs are a question of when rather than if, and such investment vehicles will then be a thing of the past
• That won’t assuage frustration of GBTC investors, who have been caught badly as alternative Bitcoin investment vehicles have come online and demand for the trust has dried up

Among the interesting aspects of the fallout from the slew of recent spot Bitcoin ETF filings is how it affects the controversial Grayscale Bitcoin Trust (GBTC). 

The trust has been flying, up 56% in the three weeks since Blackrock’s ETF filing was announced. 

Notably, this means it has significantly outpaced its underlying asset, Bitcoin. That sounds like a good thing, but it really summises the problem with this investment vehicle that has done nothing but frustrate investors in recent years, but we will get to that in a moment. 

I have plotted the movement of the GBTC against Bitcoin itself in the next chart, highlighting the outperformance the Trust has had since the ETF filing, with Bitcoin itself up “only” 21%. 

Grayscale discount to net asset value narrowing but still enormous

The trust’s discount to net asset value has also narrowed to its smallest mark since September, now below 30%. This comes as investors bet the trust is now more likely to finally be allowed to convert to an ETF.

 Should this conversion occur, the discount would narrow to near zero, as funds would then be allowed to flow in and out of the vehicle without affecting the underlying assets. For the time being, while it remains a trust, there is no way to get Bitcoin out of GBTC. This, coupled with steep fees (2% annually) means that a heavy discount has persisted. 

In truth, the very existence of the Grayscale trust is a black mark on the sector. The discount it trades at is farcical – even following the recent narrowing, a 30% delta is an enormous chasm, one that is hurting investors. 

The outsized assets under management – essentially trapped due to the closed-fund nature – feels like a throwback to the days when anyone…