GBTC Surges, Lawsuit Continues
Good for Bitcoin?
GBTC. The Grayscale Bitcoin Trust. Trades on the NASDAQ. It’s been an extremely popular way for novice investors to get a position in Bitcoin.
GBTC has filed a lawsuit against the SEC, claiming that the SEC’s denial of an application to convert to an ETF is arbitrary, and well, not fair.
Let’s back up. What does this mean and why the heck should you care?
GBTC launched in 2015. It buys actual Bitcoin with your investments. It doesn’t invest the funds or loan them out. It just holds Bitcoin. It should trade in conjunction with Bitcoin’s price. Except that it doesn’t.
GBTC wants to convert to an Exchange Traded Fund (ETF). Approval would mean several things. First, GBTC would be accessible to many institutions, including retirement plans. It would be traded, and regulated, on the NASDAQ exchange. This is huge for Bitcoin adoption. Its impact cannot be understated.
Next, GBTC’s price would almost immediately get correlated to the price of Bitcoin. It has been trading at a steep discount from Bitcoin’s asset value, for quite some time. Like a 40% discount. That’s not right.
This week, its price surged to as high as $13.49, after trading as low at as $10.36 last month. The discount dropped accordingly, to 34%. That’s an optimistic surge.
Grayscale has sued the SEC, and on Tuesday, Grayscale submitted oral arguments against the SEC. Arguing in front of the US Court of Appeals in Washington, DC, Grayscale argued that th SEC’s decision not to approve a spot Bitcoin ETF the “definition of arbitrary decision making.”
Grayscale’s attorney, Don Verrilli, is a former US Solicitor General. He argued that a Bitcoin futures ETF, which has been approved, and a spot ETF, which Grayscale is seeking, are fundamentally the same. He cites a “99% correlation between the two.”
More than a dozen organizations have sought approval for a spot Bitcoin ETF. None have gotten approval.
Trial’s Testimony Sparks Bitcoin Surge
On Tuesday, testimony continued in Grayscale’s court action against the SEC.
Approval of a spot Bitcoin ETF should cause GBTC’s price to ascend to its Net Asset Value, to the equivalent price of the Bitcoin it holds. This would propel GBTC to over $20. A really nice return for anyone who’s bought GBTC in the last several months.
It would also create about $5.8 billion in value for GBTC investors.
Another way to restore value to the GBTC shares would be to allow holders to redeem their assets, something that is currently not allowed by Grayscale, and something that the company doesn’t want. The spot ETF remains the best option.
Verrilli, Grayscale’s attorney, argued that the Bitcoin futures ETF and a Bitcoin spot ETF are fundamentally “like products.” He also stated that SEC Chair Gary Gensler’s decision making with regard to crypto projects has been “inconsistent.”
The SEC attorney, Emily True Parise, stated that the key question in the matter is whether fraud and manipulation in the Bitcoin spot market impacts the futures market in the same way. And her answer to that was, “We don’t have conclusive data.”
The judge, Sri Srinivasan, rebuked Parise’s statement however, saying that no matter where the manipulation occurs, both markets would be impacted, “like the night follows day.” Thus, the judge in this case is saying that both kinds of ETFs would react the same.
The judge’s comments seemed to be what caused the sudden surge in the price of GBTC on Tuesday, with investors feeling optimistic about the outcome of the case.
Bloomberg Intelligence has been following and researching the case and had given Grayscale a 40% chance of winning. But on Tuesday, they tweeted this, a complete reversal of their previous statement:
Others agreed that the SEC’s position is getting weaker. And the judge seems to be seeing this case the same as Grayscale’s attorneys have argued. Thursday’s tweet from crypto podcast host Scott Melker:
And this headline from seekingalpha.com :
“Legal Ruling Could Collapse GBTC's Discount To NAV Within Months”
The case could be decided this summer, and it is a huge one for Bitcoin. Stay tuned.
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Issue No. 99, March 10, 2023
Rick Mulvey is a CPA, crypto consultant, and frequent contributor to Bitcoin Magazine. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.