Grayscale owner tries to lure ETF buyers by pumping its own Bitcoin stock

Digital Currency Group can now grow its Grayscale Bitcoin Trust holdings by a further $250 million, but will ETF investors care?

Digital Currency Group (DGC) can now grow its Grayscale Bitcoin Trust (GBTC) holdings by a further $250 million, according to an announcement issued on Wednesday.

This means DGC — Grayscale’s parent company — can now hold a maximum $1 billion. It was previously green-lit to buy up to $750 million of the subsidiary’s stock.

Barry Silbert’s conglomerate is well on its way; it has already snapped up a reported $388 million in GBTC shares.

The move from DGC comes amid growing competition to attract equity investors keen to increase their Bitcoin exposure.

As reported by CoinDesk (also owned by DGC), increasing numbers of mainstream investors are looking beyond GBTC to Wall Street fund shop ProShares’ new Bitcoin futures-linked Exchange-Traded Fund (ETF).

ProShares’ ETF launched on Tuesday and ended its first day of trade with $570 million in assets under management, and $1.1 billion by Wednesday’s close.

GBTC, on the other hand, is struggling to maintain interest. The stock historically offered institutional investors a profitable arbitrage opportunity thanks to what’s known as the “Grayscale Premium” — when the value of the overall stock is worth more than its Net Asset Value (NAV).

Grayscale Bitcoin Trust has severely underperformed Bitcoin in 2021, now having returned less than 5,000% in the past five years while Bitcoin nears 10,000%.

Traders could:

borrow Bitcoin and give it to Grayscale in exchange for GBTC stock,
wait out the six-month lockup period,
dump their shares on retail for more than the value of the initial Bitcoin, and profit the difference.

However, the Grayscale Premium flipped negative for the first time ever earlier this year. This eliminated the arbitrage trade altogether, and much of its attractiveness to investors along with it.

So, no doubt DGC hopes to lure them back by implying GBTC’s share price will rise as it spends hundreds of millions more on the stock.

Grayscale wants to be a real Bitcoin ETF

On the same day that ProShares launched its fund, Grayscale filed to convert its GBTC into an ETF — a move it had been signalling all year.

Despite ProShares gaining regulator approval, Grayscale’s structure means things might be slightly more complicated for the world’s biggest Bitcoin fund, so it may take some time.

Nevertheless, CEO Michael Sonnenshein says the firm is “100% committed” to pivoting GBTC into an ETF as soon as regulators are on board.

“We are of the firm belief that because the futures and the spot pricing for Bitcoin are inextricably tied, that we have the willingness to allow or clear the way for a Bitcoin futures ETF in the market, and also clear the way for a spot ETF,” he said via Bloomberg (our emphasis).

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