Bitcoin Trust Discount Narrows As Outlook For Grayscale Court Victory Improves

A win could let Grayscale convert the trust to an ETF.

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Trust shares rose for a second day, bringing their gain to 12.5% since the asset manager’s oral arguments in its court case against the Securities and Exchange Commission were heard in Washington on Tuesday.

The trust, which trades under the ticker GBTC, is quoted at $13.24 a share, an approximately 34% discount to the value of the bitcoins it owns, the narrowest gap since Sept. 22, according to Bloomberg data.

GBTC Discount or Premium to Net Asset Value

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The discount narrowed from 42.11% at the start of the week following the hearing where a panel of judges of the Circuit Court of Appeals for the District of Columbia expressed skepticism about SEC arguments made in defense of its decision to reject Grayscale’s application to convert GBTC to an exchange-traded fund in June—particularly why the agency deemed bitcoin futures prices more resistant to manipulation than the spot market, upon which the ETF would be based. The SEC has approved several bitcoin futures ETFs but repeatedly rejected funds that hold bitcoin directly, including Grayscale’s.

Conversion into an ETF would allow anybody to buy shares, as opposed to the current limit to accredited investors and with a minimum six-month holding period. It would also eliminate the massive discount, unlocking $5.5 billion in value.

“We walked out of the courtroom feeling really encouraged and hopeful that those arguments would be persuasive to the court,” says CEO Michael Sonnenshein.

Analysts have echoed the sentiment, increasing Grayscale’s victory odds. “Going into argument, we thought the SEC was 60% favored, yet we now think Grayscale is 70% likely to win,” wrote Elliott Stein, Bloomberg’s senior litigation analyst, in a recent note.

Vasu Nigam, regulatory and policy fellow at investment firm Bain Capital Crypto, wrote the judges “seemed sympathetic to Grayscale’s arguments.” He adds that it is, ”always difficult to predict the final outcome, but this will definitely not be an easy win for the SEC.”

Even if Grayscale wins the case, however, that doesn’t necessarily mean its ETF application will be approved. “The court’s language will be key,” writes Stein. “Most likely, the court will send the case back down to the SEC for the agency to revisit its reasoning, including perhaps for it to better distinguish between language in previous orders that approved futures-based bitcoin ETFs and wording in the Grayscale rejection order. That could drag things out longer.”

Grayscale spokeswoman Jennifer Rosenthal said the firm expects a verdict by fall.

On March 6, cryptocurrency exchange FTX, entangled in bankruptcy proceedings following a swift collapse in November, filed a lawsuit against Grayscale on behalf of its affiliate hedge fund, Alameda Research, accusing the firm of charging “exorbitant management fees in violation of the Trust agreements,” totaling $1.3 billion.

Commenting on the lawsuit, Sonnenshein told Forbes: “This is a really misguided complaint. While I can appreciate that the new management team at Alameda from a fiduciary standpoint is looking to recover assets where they can for short-term wins, it certainly flies in the face of the work that’s being done to convert GBTC to an ETF, which we all know and all agree with will unlock the most value for shareholders, including Alameda, and be the most optimal long-term product structure for GBTC.”