Grayscale confirms it will convert its popular bitcoin trust into a ETF

Bitcoin’s meteoric rise has boosted crypto hedge funds

  • Grayscale confirmed its intent to convert its flagship bitcoin trust into an ETF.
  • In a blog post Grayscale said it always intended for the trust to become an ETF when permissible.
  • The announcement should relieve recent selling pressure GBTC shares, Fundstrat said.
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Grayscale Investments said in a blog post Monday it’s “100% committed” to converting its flagship Grayscale Bitcoin Trust into an exchange traded fund.

The world’s largest digital asset manager confirmed its intent to re-apply with the US SEC to offer an ETF after previous failed attempts to win approval.

“First and foremost we wish to make clear: we are 100% committed to converting GBTC into an ETF,” Grayscale said.

The Grayscale Bitcoin Trust was launched in 2013 and has been the go-to option for investors who want to add bitcoin exposure to their portfolio without directly buying the digital asset.

In the blog post, the investment company said that it always intended for its fund to become an exchange-traded fund when permissible. Grayscale first submitted an application for a bitcoin ETF in 2016 but ultimately withdrew iy because it determined the regulatory environment wouldn’t allow for a bitcoin ETF.

Now, several firms including Fidelity, NYDIG, and VanEck have applied for bitcoin ETFs in the US in the hopes that 2021 will finally be the year the SEC approves one.

“While several firms have submitted Bitcoin ETF applications in the form of an S-1 or 19b-4 to the SEC, we are confident in our current positioning and engagement with the SEC,” Grayscale said. “Today, we remain committed to converting GBTC into an ETF although the timing will be driven by the regulatory environment.”

Grayscale also said that the management fee of the GBTC fund will be “reduced accordingly” when the trust is converted to an ETF.

According to Fundstrat‘s lead digital asset strategist David Grider, the plan to convert the fund should relieve recent selling pressure on GBTC shares and will re-energize demand from bitcoin investors who are willing to contribute to the GBTC trust again.

“We think this is a very positive move for Grayscale to maintain its position as a leader as the largest listed Bitcoin product and this announcement should help close the negative premium gap,” Grider said in an email.

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Bitcoin ETFs are likely to replace the Grayscale Trust as the key driver of the crypto market, analyst says

Competition is heating up in the bitcoin fund space

  • Analysts at CrossTower said the fall in the Grayscale Bitcoin Trust share price was bad for bitcoin.
  • Canadian bitcoin ETFs were likely to fill the gap in the future as interest grows, they said.
  • However, Grayscale remains the key public player, with more than $38 billion under management.
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New Canadian bitcoin exchange-traded funds are likely to replace the Grayscale Bitcoin Trust as the major driver of the crypto market, a report from digital asset firm CrossTower has predicted.

The report said the recent fall in the Grayscale Bitcoin Trust’s (GBTC) market share price should result in the trust buying less bitcoin as it becomes less attractive to big investors due to a quirk in its structure.

In February, GBTC bought $349 million of bitcoin, down from around $1.5 billion in January and December, according to Glassnode data cited in the report, which was written by former Wells Fargo analyst Martin Gaspar.

However, the new Canadian bitcoin exchange-traded funds – the first of their kind in North America – could become the major force behind the market, CrossTower said, with the Purpose Bitcoin ETF seeing around $730 million of inflows since launching.

“We expect these instruments to replace Grayscale as key drivers of the BTC price going forward,” Gaspar wrote.

“Demand for products that have lower management fees than GBTC’s 2%, such as these ETFs, will capture a portion of investor demand that… previously went to GBTC.”

Grayscale is itself interested in applying to launch an ETF in the US, should the regulators give the green light to such products, its chief executive Michael Sonnenshein told Insider last week.

Shares in the Grayscale Bitcoin Trust have fallen around 10% in the last month, despite the price of bitcoin hitting a record high of close to $62,000.

Nonetheless, Grayscale remains the biggest public owner of bitcoin, according to Bank of America. The bitcoin trust had more than $38 billion of assets under management as of Thursday, and its daily trading volumes are multiples higher than those of Canada’s bitcoin ETFs.

Yet the fall in the share price means the Trust is now consistently trading at a discount to the value of its underlying holdings, which CrossTower said was likely to result in GBTC’s bitcoin purchases slowing.

This is because GBTC’s formerly hefty premium made it an attractive purchase for hedge funds, who could buy a slice of the trust at face value in exchange for bitcoin and then flip it for more on the open market 6 months later.

Now GBTC trades at a discount, bitcoin inflows have slowed, CrossTower said. It wrote: “This is a net negative for bitcoin as Grayscale purchases of BTC were substantial drivers of the BTC price in recent periods, in our view.”

Gaspar said: “We expect ETFs to fill the inflow gap as awareness grows and as investors prefer the liquidity of an ETF to trusts.”

The Purpose Bitcoin ETF (BTCC) – the first to launch in Canada – saw inflows of around $730 million from mid-February to March 15, taking its total holdings to 11,711 bitcoin, the report said.

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The Grayscale Bitcoin Trust’s recent plunge has its shares trading at a discount to the cryptocurrency

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The Grayscale Bitcoin Trust has fallen sharply along with the cryptocurrency itself

  • The Grayscale Bitcoin Trust plunged this week as the price of bitcoin has tumbled.
  • The trust’s share price closed at a 3.77% discount on Thursday, a sharp reversal from recent hefty premiums.
  • The bitcoin price itself has plunged around 20% this week, the biggest weekly drop since March 2020.
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The Grayscale Bitcoin Trust’s shares have plunged almost 20% this week, marking the biggest drop in the world’s largest bitcoin fund in close to a year.

Grayscale’s closing price of $45.64 on Thursday meant the fund’s public shares had fallen more than bitcoin itself over the week.

The trust’s shares closed at a 3.77% discount to net asset value on Thursday, a sharp reversal after trading at hefty premiums as the bitcoin price soared in recent months. It is the first discount since March 2017, according to Bloomberg data.

Investors have sold shares in the Grayscale Trust at a rapid rate over recent days as bitcoin has tumbled from a high of $58,000 on Sunday. The fund has a total of $32.83 billion in assets under management, according to Bloomberg.

The fall into discount territory highlights the extent to which investors have cooled on the fund this week. Its public shares traded at premiums above 15% for much of January as investors used the fund as a key way to gain exposure to bitcoin.

Bitcoin was down around 8.6% to $46,669 as of 9.25 a.m. ET on Friday. It had shed close to 20% over the week, the worst decline since March last year, as investors balk at the sky-high price.

Yet most bitcoin bulls are unconcerned about the recent drop. They argue it represents a good buying opportunity and predict that the price will continue to pull higher.

Katharine Wooller, managing director of UK digital asset exchange Dacxi, told Insider that corporate interest from the likes of Tesla should keep supporting bitcoin.

“Be warned however, bitcoin is known to significantly correct,” she said. “Whilst the medium trend is positive for holders, it is both the sign of a healthy market and a buying opportunity.”

Grayscale chief executive said that it was “certainly a risk” that the GBTC’s premium disappears, at the Bloomberg Crypto Summit on Thursday.

“But ultimately price discovery in GBTC every day is driven entirely by market forces,” he said.

(This article has been corrected. It previously said there had been large outflows from GBTC, when in fact the Trust does not operate a redemption program.)

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