Grayscale Bitcoin Trust (OTC: GBTC) stock was up 14% on Friday on the idea that Blackrock might be entering the Bitcoin ETF space. Yes, we can see what the thought is behind that, a validation of the concept and therefore a rise in that valuation. However, it's also possible to argue this the other way around. GBTC is an expensive way of holding Bitcoin, competition will lead to an outflow of funds and therefore a reduction in that valuation. We agree, this could go either way - as so often there are two opposing forces and the net position is uncertain.
The news from Friday is:” Last week, $9.5 trillion asset manager BlackRock made a seismic move by applying to the U.S. Securities and Exchange Commission (SEC) for a Bitcoin exchange-traded fund (ETF). The ripple effects of the traditional finance titan have, apparently, propped up investor sentiment and sent Grayscale's Bitcoin Trust (GBTC) flying.”
Well, OK, yes, possible to see the thinking there. Grayscale operates - entirely legally of course - in something of a grey area. Officialdom isn't all that happy with crypto, they've been limiting who can do what with varied derivatives, ETFs and so on. The result of that is that Grayscale trades at a vast discount - perhaps 40% or so before this move on Friday - to the value of assets held. So, a validation of the concept, the marketplace, perhaps that discount will fade. Which, of course, it has done in that 14% price move in GBTC.
Grayscale Bitcoin Trust stock price from NASDAQ
It is though possible to take an opposing view. Grayscale is, as they say: ”Grayscale® Bitcoin Trust is solely and passively invested in BTC,”. That is, the costs of running that fund are close to zero. And yet: “Annual Fee 2%”. Which is a near shocking price for a purely passive fund. One that doesn't even have to rebalance to an index, it's got some cold wallets and, well, not much else.
We could expect competition to erode that value proposition therefore. Yes, the difference between 2% and the 0.7% (say) of a passive index fund might not seem like much but 1.3% a year really does add up and people do move from more expensive instruments to cheaper over time.
So, we've those two opposing forces on the GBTC stock price. Blackrock entering the market might indeed provide that validation of the concept, even a clarity as to the regulatory position. That might well shrink the discount to asset value. On the other hand competition might mean funds flowing into more cheaply managed funds. The balance of the effects? Well, that's something we're going to have to wait and see.
