Here’s Why Grayscale’s Bitcoin Trust Discount Isn't Lower

Since Grayscale Investments’ legal victory last month over the U.S. Securities and Exchange Commission in its fight to convert its Grayscale Bitcoin Trust into an ETF, the outlook for a digital asset exchange-traded fund has never looked brighter—though the final outcome remains to be seen, in part because of a possible SEC appeal.  

The watershed decision from the U.S. Court of Appeals D.C. Circuit, filed on Aug. 29, called the SEC’s rejection of Grayscale’s conversion “arbitrary and capricious.” Many observers all but declared Grayscale’s victory over SEC Chairman Gary Gensler and his regulatory agency.  

“It's sort of like predicting the Patriots will win the Super Bowl, but then they win 35-3,” Bloomberg ETF analyst Eric Balchunas said of the court’s decision in a recent webinar. “This [ruling] is like, ‘Wow, I don't think they would win by that much.’”  

The GBTC Discount 

The Grayscale Bitcoin Trust (GBTC) has reached nearly $14 billion in assets since it was introduced about two years ago. It measures the discount to the value of the bitcoin it holds and signals a degree of investor sentiment on the trust’s likelihood of conversion. When the discount narrows, it indicates that investors feel more bullish on the trust and that demand for shares is increasing.  

After Grayscale’s victory, the trust’s discount shrank to its lowest level ever, hovering around 17-18%, down from its high of 43% after the collapse of crypto exchange FTX in late 2022. Yet if Grayscale’s win in court was such a victory, why is the discount not lower or even at zero? 

“While it’s true that GBTC’s discount is down—at 18%, it’s at its lowest level in nearly two years—the fact that it’s not even closer to zero suggests there’s still some concern that the trust might not be able to convert into an ETF,” etf.com analyst Sumit Roy said.  

A variety of barriers could stop conversion or extend the process through 2024 or longer. Meanwhile, the SEC has 45 days to appeal the court’s ruling; it has not indicated its intentions thus far.  

“Investors are clearly demonstrating their expectation that the ETFs will come to market,” said Ric Edelman, a wealth management advisor and writer. “There was an error, though, by many investors who incorrectly believed that the court's ruling meant that the ETF approval would happen immediately, and they're now realizing that was a naive viewpoint.”.  

If the SEC wants to stymie cryptocurrency ETFs, it could revoke bitcoin futures funds instead of approving spot digital asset ETFs.  

“The remaining discount is perhaps suggestive of, ‘Okay, you made it through one step, but there are still a few more hurdles to go,’” said Todd Sohn, ETF analyst at Strategas Securities.