Digital Currency Group has another $500M for Grayscale Bitcoin discount

Grayscale has authorized its parent Digital Currency Group (DCG) to buy up to $500 million more Grayscale Bitcoin Trust (GBTC) stock.

The move raises DCG’s limit to $750 million. Grayscale first authorized DCG to start buying back GBTC shares on March 10.

DCG had already spent $193.5 million of the originally slated $250 million by the time Grayscale filed its SEC docs on Monday.

GBTC — Grayscale’s flagship fund with nearly $38 billion in Bitcoin — has historically traded at a premium, allowing accredited investors a profitable arbitrage opportunity. 

However, that premium flipped to a discount on February 26, reaching a record of 20% on April 22. 

• Buying interest can drive the value of GBTC stock higher than its underlying Bitcoin (premium).
• Selling interest can send GBTC stock below its Net Asset Value (discount).
• Accredited investors can profit with a premium but lose when there’s a discount.

Grayscale doesn’t offer a redemption mechanism (shareholders can’t exchange their GBTC stock for Bitcoin). 

So, the only way to cash in GBTC stock is to sell it — leaving the accredited crowd stuck without any premium to exploit.

Grayscale Bitcoin faces shareholder revolt

With shareholders already paying a 2% management fee on their GBTC holdings per year, the discount is making the trade less attractive.

The problem has been so frustrating that Chicago-based investment firm Marlton, a long-term GBTC shareholder, wrote a letter to Grayscale’s board in early April.

Marlton asked Grayscale insiders to address the discount immediately. It seems the letter worked.

[Read more: Activist investor says Grayscale’s Bitcoin ETF pledge is not enough]

However, it’s too early to tell whether the additional half-billion can really alleviate the persistent discount nagging GBTC shareholders.

But the discount was still 13.5% at Monday’s close, according to YCharts. We’ve reached out to Grayscale for comment.