Hedge Funds Seized an Opportunity
Between 2021 and 2023, hedge funds noticed something interesting happening with Grayscale Bitcoin Trust (GBTC).
They believed that the price of GBTC would go up once the Securities and Exchange Commission (SEC) approved a bitcoin exchange-traded fund (ETF).
Background on Grayscale’s Efforts
Grayscale had been trying to turn its trust into an ETF since 2016.
The SEC rejected their application in 2022, leading Grayscale to file a lawsuit.
Approval of ETF
Finally, on January 11, 2024, the SEC approved the conversion of Grayscale’s trust into an ETF.
This approval followed the SEC’s nod for U.S.-listed ETFs tracking bitcoin.
Price Discrepancy of GBTC
GBTC was trading at a much lower price than the actual value of its underlying assets, reaching nearly a 50% discount in December 2022.
Various factors, including issues with the FTX crypto exchange, contributed to this discount.
Factors Narrowing the Discount
In August 2023, a court decision favored Grayscale, leading to a reduction in the price gap between GBTC and its underlying assets.
Hedge Funds Joining the Opportunity
Around 20 hedge funds, including Fir Tree Partners and Hunting Hill, saw the potential and invested in GBTC at a significant discount.
Example of Fir Tree Partners
Fir Tree Partners, managing $3 billion, invested $60 million in GBTC when it was trading at a 42% discount.
They started selling their position after the court decision in September 2023, completing the sale in January 2024.
Macro Hedge Fund’s Confidence
The founder of a U.S.-based macro hedge fund expressed high confidence in GBTC’s approval after the court ruling in August 2023, calling it “the trade of a century.”
Post-ETF Conversion Outflows
After GBTC converted into an ETF, many hedge funds are withdrawing their investments, with outflows totaling $4.77 billion since the ETF’s launch.
Mixed Feelings About Bitcoin ETF
While hedge funds found the GBTC price difference trade successful, not all are reinvesting in bitcoin.
Some hedge funds are planning to exit their positions in the GBTC-turned-ETF, expressing less excitement about investing in the spot bitcoin ETF.