Contrarian investors who decided to purchase shares in Grayscale Investment’s Bitcoin Trust (GBTC) in early January, a period of pessimism in both the cryptocurrency and crypto-related markets, have been handsomely rewarded. GBTC shares have surged by 220% to $26.79 this year, as reported by the charting platform TradingView. In comparison, Nvidia Corp (NVDA), the top-performing S&P 500 stock, has risen by 198%, while the index itself has seen a 9% increase. Bitcoin (BTC) has doubled in value this year to reach $35,000, while traditional fixed-income assets like government bonds have suffered significant losses.
The strong performance of GBTC comes amidst hopes that the U.S. Securities and Exchange Commission (SEC) will approve the conversion of the Grayscale Bitcoin Trust into an open-ended exchange-traded fund (ETF) focused on bitcoin. This optimism has led to a decrease in the discount of GBTC shares compared to the trust’s net-asset value (NAV), falling from 46% earlier this year to the current 13%. Traders are buying GBTC shares while hedging downside risk by simultaneously selling bitcoin in the spot/futures market. Once the conversion is approved, market makers are expected to bring the price back to the NAV.
Ilan Solot, co-head of digital assets at Marex Solutions, commended the strategy of profiting from the narrowing GBTC discount, stating that “GBTC is the gift that keeps giving.” This strategy, which aimed to benefit from the reduction in the GBTC discount, may have limited early gains in bitcoin this year.
As the discount rapidly narrows due to increased prospects of the SEC approving the ETF conversion, traders may unwind this strategy, including the short BTC futures leg. This action is expected to strengthen bullish pressures on the cryptocurrency. Alexander S. Blume, managing partner at Two Prime Digital Assets, noted that “as the GBTC ETF conversion approval seems increasingly likely, investors know that market makers will bring the price back to NAV as soon as it starts trading. As this investment instrument normalizes back to NAV value for investors, it seems likely that short BTC pressure will subside and support upward pressure on BTC spot price.”
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