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Shares of Grayscale Bitcoin Investment Trust’s (GBTC) Bitcoin (BTC) investment trust greatly rewarded contrarian investors who invested at the start of this year, during which significant downturns were witnessed in cryptocurrencies and adjacent markets. As of the latest data, GBTC’s share has risen by 220% since the beginning of the year. Meanwhile, the best-performing S&P 500 stock, Nvidia (NVDA), saw an increase of 198% during the same period, trailing GBTC’s performance.
GBTC’s Shares Soared by 220%
According to data provided by TradingView, GBTC’s shares surged 220% since the start of the year, reaching $26.79. Meanwhile, the best-performing S&P 500 stock, NVDA, increased by 198% in the same timeframe, with the entire index recording a 9% gain. Bitcoin doubled its value since the beginning of the year, reaching $35,000, while traditional fixed-income instruments like government bonds plummeted.
GBTC’s outstanding performance is attributed to growing hopes that the U.S. Securities and Exchange Commission (SEC) would greenlight the conversion of the Grayscale Bitcoin Trust into an open-ended exchange-traded fund (ETF). This optimism was reflected in the narrowing discount of GBTC shares relative to the trust’s net asset value (NAV) from 46% earlier this year to 13%. Investors buying GBTC shares while simultaneously selling BTC in the spot/futures market saw protection from downside risk. The market makers will revert the price back to NAV with the approval of the conversion into a spot Bitcoin ETF.
Ilan Solot, Co-head of Digital Assets at Marex Solutions, commented, “GBTC continues to be a gift that keeps on giving to its investors. I commend those who played against the futures, causing the discount to shrink.” Experts believe that the two-legged investment strategy aiming to profit from the decreasing GBTC discount may have capped investors’ gains in Bitcoin earlier this year.
As the likelihood of SEC approving the ETF conversion increased, causing the discount to narrow swiftly, investors started bolstering bullish pressures surrounding the cryptocurrency, relaxing strategies that included short legs in BTC futures. According to Alexander S. Blume, Managing Partner of Two Prime Digital Assets, as the approval of GBTC’s conversion into a spot Bitcoin ETF becomes more likely, investors recognize that market makers will revert the price to NAV as soon as they start trading. Blume anticipates that as this investment tool normalizes towards the NAV value for investors, there will be a decrease in BTC short pressure, supporting upward pressure on BTC’s spot price.
Potential Pitfall with Spot Bitcoin ETF: Short Pressure
Bitcoin’s price surged to its highest level in 17 months, crossing $35,000 with a 28% increase in less than two weeks, buoyed by positive spot Bitcoin ETF rumors, including the listing of the world’s largest asset management firm BlackRock’s spot Bitcoin ETF ticker, IBTC, on the DTCC’s website.
It is anticipated that the SEC will approve several spot Bitcoin ETFs early next year. While there’s a consensus that BTC will surpass $50,000 after the ETFs get approved, some experts caution that financialization might introduce additional selling pressure to the market. On this point, Blum warned, “ETFs will also enable more institutional participants to short the instrument. How this will impact the market remains unclear.”
