Grayscale Bitcoin trust discount narrowing, SEC pushed out ETF deadline

Key Takeaways

• Crypto volatility has picked up in the last two weeks
• A positive court ruling regarding the conversion of Grayscale’s Bitcoin trust into an ETF propelled markets last week
• Gains have since been given up as SEC pushed out assessment date for ETF filings

After a long period of calm, the crypto markets have finally shown signs of life in the last couple of weeks. First, the price of Bitcoin fell from $29,000 to $26,000 two weeks ago, including a 7% dip in ten minutes, as markets recalibrated to more hawkish interest rate expectations.

Last week, the price rose back up to $27,000, buoyed by a seemingly positive ruling in the courts. A federal court ruled last Tuesday that the SEC was wrong to reject an application from Grayscale Investments to convert its trust into an ETF, the judge saying the regulator failed to “offer any explanation” following its ruling. 

While this does not guarantee the eventual conversion of the trust into an ETF, it is nonetheless a big win for both Grayscale and traders who were betting on a positive outcome, with a firm recommendation to the SEC that it should review its decision to reject. 

Previously, the SEC rejected Grayscale’s application on grounds that the products were not “designed to prevent fraudulent and manipulative acts and practices.” Grayscale subsequently sued. 

However, the boost to markets ended up being short-term, for reasons again related to the SEC. The regulating body delayed its decision on all ETF applications, including those filed by Blackrock and Fidelity, to October. Soon, Bitcoin was back down at $26,000. 

The week sums up the year so far for Bitcoin, an asset that has been tossed about by developments in the regulatory sphere all year. 

However, assessing the price of GBTC, and comparing it to Bitcoin, does show that the market feels more regulatory clarity is on the way – and potentially in a positive way. In the next chart, we have plotted the performance of GBTC against Bitcoin since the latter’s all-time high in November 2021. 

Throughout the bear market, as well as the rebound in 2023, Grayscale investors have suffered worse than counterparts who invested in Bitcoin directly. But in recent months, the discount has been declining, with the court ruling pushing a substantial convergence last week.

If we plot the same two assets…