Grayscale’s GBTC stock price rallied 25% ever since BlackRock filed for spot Bitcoin ETF, and the discount on its BTC holdings dropped to 37%.
If BlackRock wins the SEC approval it would step up competition in the market putting pressure on Grayscale’s valuations.

Despite the crackdown by the US SEC in recent times, big players from the traditional financial markets have stepped in to launch their own spot Bitcoin ETF products. Ever since BlackRock submitted its application, the share price of Grayscale Bitcoin Trust (GBTC) has been moving upwards.

Over the last week, the GBTC share price has surged by more than 27%. During Tuesday’s trading session on June 20, the GBTC share price gained 11.40% ending the trading session at $16.85. The stock also registered its highest single-day trading volume of $10.24 million, since November 2022. As part of the current recovery in the GBTC stock, the discount on its underlying BTC holdings has dropped to 34%, from 44% a week before.

If BlackRock’s fund is approved, it would compete with GBTC. However, the trust’s discount is decreasing because investors believe there is a higher chance of Grayscale successfully converting it into an ETF. In the past, the US Securities and Exchange Commission rejected physically-backed Bitcoin ETFs due to concerns about manipulation and investor protections. BlackRock’s application is seen as a sign that the regulator’s stance may be changing. Speaking on the development, Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart wrote:

“BlackRock’s filing for a spot Bitcoin ETF has restored hope in approval thanks to the company’s size, stature and reputation. BlackRock likely didn’t make the decision lightly and is used to working with regulators and the government at large.”

Grayscale vs SEC

In the past Grayscale Investments made several requests to the U.S. Securities and Exchange Commission (SEC) to convert the GBTC Bitcoin Trust into a spot Bitcoin ETF. However, the federal securities regulator has been denying it citing concerns over the lack of consumer protection and other risks.

Grayscale has argued that they have considered taking all necessary measures as requested by the securities regulator, despite that the SEC hasn’t granted them permission. Furthermore, Grayscale also considered suing the SEC on this matter.

Grayscale is involved in a well-known legal fight with the SEC. They sued the regulator last June because their request to convert GBTC into a physically backed ETF was denied. If GBTC becomes a spot Bitcoin ETF, it would address a problem for Grayscale. Unlike an ETF, GBTC cannot adjust the number of shares based on demand, leading to a significant discount compared to the value of its Bitcoin assets.

Although BlackRock’s spot Bitcoin ETF approval might open the gates for Grayscale as well, it might bring strong competition simultaneously. Currently, Grayscale is charging traders a hefty fee of 2.0% and 2.5% annually for its GBTC and ETHE products.

Bloomberg analyst Seyffart said that “If BlackRock wins approval for their ETF, which isn’t guaranteed, it may decrease Grayscale’s valuation because Grayscale would be forced to lower fees sooner than might have been assumed”.

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Filed under: Bitcoin - @ June 21, 2023 10:10 am