Grayscale CEO Sees ETF as Solution to Biggest Crypto Fund’s Woes

Converting to an ETF would solve a lot of the Grayscale Bitcoin Trust’s problems, according to the company’s chief executive officer -- but the odds are looking longer.

Shares of the $36.5 billion trust closed at a record 20.5% discount relative to its holding on Wednesday as GBTC sold off more quickly than the cryptocurrency itself, according to data compiled by Bloomberg. The disconnect is largely due to the fact that shares in the largest crypto trust can’t be redeemed, unlike most traditional exchange-traded funds -- a dynamic that can lead to dramatic supply and demand imbalances.

The disconnect between GBTC prices and its Bitcoin holdings would likely be repaired by converting the trust into an ETF, Grayscale Investments CEO Michael Sonnenshein said Thursday -- a process the company is “100% committed” to doing.

Grayscale CEO Sees ETF as Solution to Biggest Crypto Fund’s Woes

However, Bitcoin ETF enthusiasts were dealt several blows this past week. Securities and Exchange Commission Chairman Gary Gensler told Congress last week that the cryptocurrency market “could benefit from greater investor protection,” followed by a letter from SEC staff Tuesday warning of the risks of investing in mutual funds that hold Bitcoin futures.

Grayscale CEO Sees ETF as Solution to Biggest Crypto Fund’s Woes

“It is our belief looking at the arbitrage mechanism built in ETFs that any discount or premium of where shares may trade relative to the product’s net asset value would be arb’ed away,” Sonnenshein said in a Bloomberg Television interview. “There is certainly a narrative about buying shares at a discount and potentially buying Bitcoin exposure at a discount to the spot price of Bitcoin that eventually would be arb’ed away when the product or if the product is able to convert to an ETF.”

GBTC has dramatically underperformed the world’s largest cryptocurrency after the trust’s outstanding shares -- which can’t be destroyed -- ballooned by hundreds of millions over the past year. GBTC is roughly up 20% so far in 2021, while Bitcoin has surged nearly 73% over that span.

The discount has deepened even as Barry Silbert’s Digital Currency Group Inc., which controls Grayscale Investments, has intervened. The company said this month that it will buy up to $750 million GBTC shares, a $500 million increase to the crypto giant’s pledge in March that it would scoop up to $250 million worth of the trust.

©2021 Bloomberg L.P.

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