Contrarian investors who staked shares in Grayscale Investment’s Bitcoin Trust (GBTC) in early January, a time of gloom and doom in the cryptocurrency and adjacent markets, received generous rewards.
GBTC shares are up 220% to $26.79 this year, according to charting platform TradingView. Meanwhile, Nvidia Corp (NVDA), the best-performing stock in the S&P 500, recorded… Has risen 198%, with the index rising 9%. Bitcoin (BTC) has more than doubled this year to $35,000, while traditional fixed-income instruments like government bonds have collapsed.
Grayscale and CoinDesk are part of the cryptocurrency group.
GBTC’s outperformance comes amid hopes that the US Securities and Exchange Commission (SEC) will give the green light to convert the Grayscale Bitcoin Trust into an open-end exchange-traded fund (ETF) that invests in Bitcoin.
Optimism has narrowed the discount in GBTC shares compared to the fund’s net asset value (NAV) to 13% from 46% this year, with traders buying GBTC shares while hedging downside risks by simultaneously selling Bitcoin on the spot/futures market. . Once the transfer is approved, market makers will return the price to the net asset value.
“GBTC is the gift that keeps on giving. “Congratulations to those (many on this list) who successfully narrowed spreads against futures,” Ilan Solot, co-head of digital assets at Marex Solutions, said in an email last week.
A binary strategy aimed at taking advantage of a narrowing GBTC discount may have limited Bitcoin’s gains early this year.
With the discount rapidly narrowing amid prospects of the SEC approving a conversion into an ETF, traders may unwind the strategy, including a short bitcoin futures leg, reinforcing bullish pressures around the cryptocurrency.
“As approval for a GBTC ETF conversion looks increasingly likely, investors know that market makers will return the price to NAV once trading begins. As this investment vehicle returns to NAV value to investors, it is likely that the BTC short squeeze will continue.” “It mitigates and supports upward pressure on Bitcoin’s spot price,” Alexander S. Blum, managing partner at Two Prime Digital Assets, told CoinDesk.
Bitcoin rose 28% in less than two weeks, hitting 17-month highs above $35,000 mainly on the back of spot ETF rumours, including those related to the supposed listing of BlackRock’s spot Bitcoin ETF index, IBTC. , on the DTCC Clearinghouse website.
The SEC is expected to approve several spot ETFs early next year. While the consensus is for Bitcoin to rise to $50,000 and higher after ETFs are approved, financialization could also lead to additional selling pressure in the market.
“ETFs will also allow more institutional participants to short sell this instrument. It is unclear how this will impact the market,” Bloom said.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”