Grayscale Bitcoin Trust (OTCQX: GBTC) stock is up 16%. GBTC is up because it’s seemingly won the case against the SEC. It should now be able to convert to an ETF from its current structure as a closed end fund. This should, all other things being equal, eliminate the discount to net asset value. It’ll also preclude the possibility of it trading at a premium too but that’s not been happening just recently.
The background here is that ETFs based upon bitcoin futures are allowed by the SEC. But they’ve always refused to allow a spot bitcoin ETF. There never was any reasonable justification for this view other than that they just didn’t seem to want to. And that’s not a good enough reason the court has just decided: “But in fact the US Securities and Exchange Commission has approved Bitcoin futures ETFs (Approach 1) and repeatedly declined to approve spot Bitcoin ETFs (Approach 2), for reasons that have never really made much sense to me. Essentially the SEC worries that the spot Bitcoin market is the Wild West, someone might manipulate it, and if they did then the price of the Bitcoin ETF would be manipulated. Whereas Bitcoin futures trade on the Chicago Mercantile Exchange,2 a US commodities exchange regulated by the Commodity Futures Trading Commission; that market is presumably free of manipulation, so a Bitcoin futures ETF can rely on it.
This strikes me as a bit silly.” It struck the court as being a bit silly too. Which is why the SEC lost the case.
Grayscale Bitcoin Trust stock price from Google Finance
Closed end funds can - and do - trade wildly off their asset values. ETFs not so much. So, assuming that conversion to a spot ETF is going to happen we should see GBTC approach its full asset value. As we’ve said before about Grayscale: “Grayscale Bitcoin Trust (OTCQX: GBTC) stock should track the bitcoin (BTC) price. GBTC stock doesn't track the bitcoin price - so, should we regard this as a problem or not?” The point from this court case being that in the near future it should track that asset value and thus the bitcoin price.
It’s also possible to ponder something else we’ve said about GBTC: “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.” If this idea is now to be more generally legal then whose fund is going to gain all the business and liquidity
