21 Jun 2022

GBTC’s discount reaches all-time low 2 weeks ahead of ETF verdict

The GBTC discount reached record lows of 34% following the 3AC collapse.
Source: Skew
The collapse of 3AC has contributed to a further widening of the GBTC discount to its net asset value. According to Bloomberg, 3AC is the largest shareholder of GBTC, holding 38.9 million shares. However, the 3AC balance of GBTC is relatively unclear. The fund last filed its holdings in a 13G filing on April 1st, 2021.Nevertheless, it seems clear that 3AC still had a sizable exposure to GBTC, with the fund reportedly seeking to offload its GBTC exposure to external investors prior to the definitive 3AC meltdown. 3AC provided a pitch deck laying the case for arbing the GBTC discount ahead of GBTC’s final verdict on their ETF filing to the SEC.The trade idea is relatively simple: Long GBTC and hedge by shorting BTC. 3AC sought to facilitate this trade with a corresponding 20% performance fee.While 3AC’s GBTC push ended in tears, the current discount of 34% of GBTC represents an interesting and possibly attractive trade. The SEC deadline for the ETF approval is set for Wednesday, July 6th. An SEC denial remains the most likely outcome. On June 29th, one week before GBTC’s verdict, Bitwise will receive its final verdict – the outcome of Bitwise’s filing will likely foreshadow the outcome of GBTC’s filing.
GBTC discount suggests 20 new close-ended years
Source: Grayscale
Still, at a 34% discount, GBTC is already an attractive long-term alternative for investors seeking BTC exposure. Given Grayscale’s 2% annual management fee, the fund would need to remain close-ended and fail to convert to an ETF in the next 20 years to justify its current discounts. This seems unlikely. When also accounting for the tendency of bitcoin to trade in a structural contango, this GBTC trade seems like a bargain. While many have hoped for an ETF conversion, a GBTC approval could be bearish short-term, creating huge sell-side pressure from funds taking advantage of the massive arbitrage in a cash-neutral long GBTC, short BTC trade.
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