It appears that Grayscale Bitcoin Trust (GBTC) has not managed to hit a bottom yet because last Friday saw the shares of the biggest Bitcoin fund in its history shed 35.18%.
With shares of GBTC, investors are able to trade shares of trust that have accumulated bitcoin and every share tracks the price of the world’s top cryptocurrency.
The aim is to provide traditional investors with crypto exposure without them having to actually buy and hold bitcoin on their own.
Since the trust was launched back in September 2013, it has been traded at a high premium historically to spot Bitcoin prices.
Therefore, it had been a rather attractive option for investors for years, even though it came with an annual management fee of 2%.
However, GBTC turned negative at the end of February last year and started trading at a discount. This was after a number of Bitcoin ETFs had been rolled out in Canada.
It may appear to be a bargain when net asset value (NAV) is discounted because it allows investors to purchase ‘shares’ in Bitcoin below the cryptocurrency’s actual market value.
But, there is a catch involved as GBTC does not come with a redemption mechanism.
Essentially, it means that arbitrage trading is not possible, which would involve the purchase of discounted shares and their redemption for the underlying asset that is sold for a profit. This is how an ETF works.
Instead, GBTC investors have no other option than to sell their shares for a loss, depending on when they bought them, or just hold onto a decaying asset.
Grayscale’s website shows that the total assets under management in the trust are around $11.9 billion. It has been argued that converting the trust into a Bitcoin ETF is the best way to resolve this problem.
This would be an exchange-traded fund (ETF) that is backed with physical bitcoin, which would bring the product to the value of the underlying asset.
However, the company has not been able to do so because of the US Securities and Exchange Commission (SEC), which has not approved any Bitcoin ETF for the American markets.
But, it should be noted that the regulatory authority has given approval for a number of Bitcoin futures ETFs.
Back in June, Grayscale’s application of converting its GBTC into a Bitcoin ETF had been rejected by the SEC.
The securities regulator said that it was enough for protecting investors from manipulative and fraudulent practices and acts.
Due to the SEC’s decision, Grayscale filed a lawsuit against it and Michael Sonnenshein, the chief executive of the company also spoke up.
He said that the investment firm would continue to use all its resources to support its investors and would also make an effort to ensure that all Bitcoin investment vehicles receive equitable treatment.
The SEC has been cracking down against the crypto industry in the US and has chosen to take the enforcement approach to do so.