DCG to Buy More of Crypto Trust Amid Stubborn Discount
(Bloomberg) -- The parent company behind the popular Grayscale Bitcoin Trust said it’s upping the amount of shares it plans to purchase as the fund remains at a deep discount to its holdings.
Barry Silbert’s Digital Currency Group Inc., which controls Grayscale Investments, said Monday it will now buy up to $750 million GBTC shares. That’s a $500 million increase to the crypto giant’s announcement in March that it would scoop up to $250 million worth of the trust.
The boost comes as the largest crypto fund remains mired in a steep discount to the underlying Bitcoin it holds. At one point last month, GBTC closed roughly 19% below the value of its assets -- a record discount -- as investors who piled in during Bitcoin’s bull run headed for the exits amid a selloff. Though its narrowed in the weeks since, GBTC closed at a 10% discount on Friday.
“The company is simply buying back their trust at a discount, in that they are buying shares below NAV,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial, referring to net-asset value. “It is a rational strategy for the company and product to increase their purchases given the persistent, multi-month discount in GBTC.”
As of the end of April, DCG had purchased $193.5 million worth of shares of GBTC, according to a company statement. It is the third-largest holder of the trust, data compiled by Bloomberg show. A Grayscale representative declined to comment.
The $36 billion Grayscale Bitcoin Trust was for a long time one of very few ways to get exposure to Bitcoin without buying the digital asset directly. That, in turn, led to a steep premium on its shares in the secondary market where they trade after a six-month lockup period. But unlike an exchange-traded funds, GBTC shares don’t allow for redemptions -- meaning that shares can be created, not destroyed -- leading to frequent imbalances.
A slew of GBTC shares, created in the six months through the end of February, are set to hit the market by the end of August. That will widen the pool of unrestricted shares eligible for trading to more than 690 million from less than 500 million currently, according to Bloomberg Intelligence analyst James Seyffart, who tracks such data. That deluge, coupled with investors’ new capacity to buy Canadian Bitcoin ETFs, isn’t a good mix for GBTC, he said.
Still, Grayscale said that it’s “100% committed” to converting GBTC into an ETF once the Securities and Exchange Commission approves the structure. “When that happens, the discount will be non-existent,” said Seyffart. “That fact should help to keep somewhat of a floor on the discount. But it hasn’t helped much recently.”
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