Grayscale Bitcoin Trust (GBTC) shares have shot up a whopping 220% in value since the beginning of the year, overtaking even tech giant Nvidia.
It's a wonderful time of the year for early GBTC investors, especially those who took a risk and snapped up these shares in January 2023. Those early months were marred by uncertainty, primarily due to the fallout from the FTX ecosystem collapse, which cast a shadow over the prospects of crypto investments.
According to data from the crypto charting platform TradingView, GBTC shares have not only weathered the storm but have also surpassed Nvidia Corp (NVDA), a well-known top performer among S&P 500 stocks. NVDA achieved a remarkable 198% growth during the year, while GBTC shares surged by an even more impressive 220%, reaching a price of $26.79.
In comparison, Bitcoin (BTC) doubled in value, reaching $35,000, while traditional fixed-income instruments like government bonds faced a sharp decline.
The Driving Force: Bitcoin ETF
The driving force behind GBTC's remarkable outperformance lies in its proposition for an open-ended Bitcoin exchange-traded fund (ETF). Despite pending approval from the SEC, this potential investment vehicle has garnered substantial interest from investors who firmly believe it is just a matter of time before it receives the green light. As a result, many have heavily invested in GBTC shares. Ultimately, it is the soaring demand for Bitcoin that fuels the interest in GBTC shares.
The demand for the ETF has also propelled the price of Bitcoin, which witnessed a remarkable 28% increase in less than two weeks. At above $35,000, the crypto also hit a 17-month high.
This surge has been primarily driven by spot-ETF rumors, including the anticipation of BlackRock's spot bitcoin ETF ticker, IBTC, being listed on the clearing house DTCC's website.
Narrowing Discount Gap
One key indicator of this optimism is the significant reduction in the discount of GBTC shares relative to the trust's net-asset value (NAV). What was once a 46% discount has now shrunk to just 13%.
Traders have responded by buying GBTC shares while simultaneously hedging downside risks through selling bitcoin in the spot/futures market. The expectation is that once the conversion to an ETF is approved, market makers will align the price with the NAV.
The strategy aimed at profiting from the narrowing of the GBTC discount may have initially restrained gains in Bitcoin earlier in the year. However, as the discount continues to narrow and prospects of SEC approval for the ETF conversion increase, traders may unwind this strategy. This shift is likely to bolster bullish pressures around the cryptocurrency.
Future Prospects and Challenges
Expectations are high for the SEC to approve several spot-based ETFs early in the coming year. While consensus suggests Bitcoin's price could surge to $50,000 and beyond following ETF approvals, financialization could introduce additional selling pressure from institutional entities looking to short this instrument.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
