The price of shares in Grayscale Bitcoin Trust (GBTC) has been soaring in recent days, fuelled by the possibility of the fund being converted into an exchange-traded fund (ETF).

On Tuesday, GBTC saw its shares reach over $16, gaining 11.44% by the end of the trading day, according to data from Yahoo Finance. This marks the first time the fund has hit this level since May 10.

The rise in the GBTC share price came after BlackRock, the world’s largest investment management firm, filed for a spot bitcoin ETF.

The surge in GBTC shares was also influenced by investors who are optimistic about the possibility of the fund being converted into an ETF amid Grayscale’s ongoing lawsuit against the US Securities and Exchange Commission (SEC).

“Many are taking BlackRock’s conviction as a sign that they expect Grayscale to win its case against the SEC, and want to be in with an ETF filing should that happen,” macro analyst Noelle Acheson reportedly said in a note.

Grayscale first submitted an application to convert GBTC into an ETF in 2016.

Currently, shares of GBTC trade below the bitcoin’s underlying value held by Grayscale due to the structure that restricts the redemption of shares for bitcoin.

However, if GBTC were to become an ETF, shares would follow Bitcoin’s price more closely as traders buy and sell the difference.

In June 2022, after the SEC declined the ETF application, Grayscale filed a petition with the US Court of Appeals for the District of Columbia Circuit to challenge the decision.

GBTC Discount Falls to Lowest Level Since September

The discount on GBTC shares relative to their net asset value also fell to its lowest level since last September, reaching as low as 33%.

As of now, the GBTC is trading at around a 36% discount against BTC spot prices, according to data by YCharts.

Historically, GBTC has been trading at a positive premium of around 20% since 2015.

However, this premium has turned negative over the past couple of years, reaching an average discount of 19%.

The premium refers to the difference between the value of BTC held by Grayscale against the market price of those holdings.

“The discounts have also narrowed further as GBTC’s liquidity remains low,” Vetle Lunde, an analyst at digital asset research firm K33 Research, said in a note.

He added that at the current discount level, “the market is still implying that GBTC will remain close-ended until 2042 (when adjusting for annual fees). Thus one could very easily make the argument that GBTC still remains substantially underpriced due to backlash from all the built-up leverage from 2020-2021.”

How Grayscale’s GBTC is Different From BlackRock?

Although some may perceive that BlackRock’s iShares product is similar to the GBTC, there are certain differences that distinguish them.

For instance, while the iShares product is technically a trust, it offers redemptions that are akin to an ETF, unlike GBTC, according to Noelle Acheson, editor of Crypto is Macro Now.

Acheson explained, “The market hears ‘trust’ and thinks it will be like GBTC with no redemptions, but that’s not the case here.”

The primary difference between a Bitcoin ETF and a trust exists in the ability to purchase bitcoin to match the trading price at the end of the day, which only an ETF can do.

A trust usually trades at either a premium or a discount to the cash equivalent or underlying assets’ value as a fixed portfolio, since it lacks the ability to adjust its holdings. In contrast, an ETF can purchase Bitcoin at the end of the trading day to match the trading price, which a trust cannot do.

BlackRock’s ETF Filing Boosts Institutional Investor Interest

Aside from its apparent benefit to the GBTC, BlackRock’s filing for a spot bitcoin ETF has also helped increase institutional interest in the space.

As reported, around $5.1 million was withdrawn from digital asset funds last week, with outflows continuing for the ninth week in a row.

However, this is significantly less than the $88 million pulled out of funds the previous week after high-profile SEC lawsuits against Coinbase and Binance labeled multiple altcoins as securities.

CoinShares attributed the change to BlackRock’s Bitcoin ETP bid, claiming that the end of the week “saw minor inflows following the news that one of the world’s largest asset managers has applied for Bitcoin ETF.”

Image Source: CoinShares

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