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

Grayscale parent Digital Currency Group is hitting the buy button on Grayscale Bitcoin Trust, and this is a hand pressing that very same button!

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.

The Grayscale Discount is an entirely new phenonema.

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.

GBTC has underperformed against Bitcoin and the three Canadian ETFs.

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.

Grayscale’s Ethereum Trust has returned far less than Ethereum since it opened to retail investors in 2019. No discount, though.

[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.

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