Grayscale Investment Trust (GBTC) started out as a revolutionary way for retail investors to get exposure to BTC without having to take on any potential risk of losing access to their coins. But over the past year, the investment has become more and more of an anchor on individuals’ returns.
That’s because there is a growing divergence between the price of GBTC and the underlying BTC, which the trust is supposed to track.
As of today, that divergence is to the tune of 47%. To put this in perspective, there are two different ways an investor could internalize this number:
- You could be excited. Think about it… What this discount means is that you are able to buy BTC at a 47% discount! Sure, you have to pay Grayscale’s management fee, but you can’t beat buying an asset for 47% off. If the discount ever closes due to market forces or GBTC converting to an ETF (which it promises to do), then there is a huge arbitrage opportunity here.
- You may be upset. Although GBTC is trading at a large discount today, prior to February 2021, it was trading at a premium. And as of today, GBTC is trading at about the largest discount it ever has. What this means is that had you bought GBTC on nearly any day prior to today, you have lost money in regard to the fund’s ratio to the underlying asset, BTC.
Now, here at CoinSnacks, we’ve spent a few months highlighting some great calls we have made for investors. But, to be intellectually honest, we also need to admit when we have gotten things wrong.
In the case of GBTC, we have been recommending the stock since it went into discount territory. Our thought process was that someday Grayscale would become successful in its bid to convert to an ETF – thus closing out the discount.
Unfortunately, not only has that not happened, but as explained above, the discount has gotten worse.
And although we still believe that one day Grayscale will eventually be approved (or win their lawsuit against the SEC) to convert GBTC into an ETF, there seemed to be no hope for the discount closing in the near future.
But, that may be changing.
That’s because this week, Grayscale’s CEO, Michael Sonnenshein, stated that the firm is considering a tender offer for up to 20% of the outstanding shares of the $10.7 billion trust. A tender offer is basically a buy-back at a specific price, and in theory, should help improve GBTC’s discount with BTC.
So, what’s the future hold? Honestly, we aren’t sure. But with DCG (the parent company of Grayscale) currently running into issues from the FTX fallout, we recommend not trying to make any trade into GBTC without fully understanding the risks involved.