Dip Buyers Help Record Bitcoin Reduction at Grayscale Trust

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(Bloomberg) — What once looked like an insurmountable discount plaguing the world’s largest Bitcoin fund is starting to shrink as some speculators see the end in sight to Barry Silberts’ woes.

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The $10.9 billion Grayscale Bitcoin Trust (GBTC ticker) jumped nearly 12% on Monday, outpacing a 1.3% rise in the cryptocurrency itself. This reduced the remittance of funds on its underlying bitcoin holdings to around 39%, from a nadir of 49% reached in mid-December.

The reversal amounts to a bet that the pain of Grayscales’ sister company, crypto lender Genesis, could force the hand of its parent company, Silberts Digital Currency Group, to find a solution that would eventually eliminate the GBTC discount. Grayscale, which generates hundreds of millions of dollars in annual fees from its suite of crypto trusts, became the crown jewel of the DCG empire after Genesis halted withdrawals in November and tried to avoid bankruptcy. .

However, as tensions boil over with Genesis and Grayscale itself comes under fire, hedge fund Fir Tree has taken legal action against the asset manager linked to the GBTC handover, while Valkyrie has launched a Militant campaign to overthrow Grayscale traders are betting some sort of conclusion will take shape. .

There are a lot of issues with DCG and Genesis that can cause them to try to unlock the underlying value of GBTCs. There are also plenty of moves by outsiders like Fir Tree, Valkyrie, and others to try to take over or force redemption for some, if not all, of the trust. It could also simply buy big fish for shares to facilitate the voting process to change GBTC’s sponsor and open buyouts, Bloomberg Intelligence analyst James Seyffart said. All of this just seems to increase the likelihood of something happening in 2023 to at least mitigate some of the discount.

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BlockTower Capital, which manages more than $500 million, is one such buyer. Ari Paul, co-founder and CIO of the company, claims to have recently deployed over $10 million to GBTC. He says there are several ways the rebate could shrink, including converting the trust into an ETF, the Securities and Exchange Commission forcing partial or full redemptions, Grayscale voluntarily dissolving the trust, among other reasons.

This thing trades so thinly, so illiquid, Paul said in a phone interview. It could be that a $100 million buy itself could close most of the gap.

DCG, parent of Grayscales, faces a number of knocks. Crypto exchange Gemini co-founder Cameron Winklevoss on Tuesday called on Digital Currency Group’s board of directors to remove Silbert as chief executive because some 340,000 Gemini users cannot access around $900 million in funds after Genesis halted repayments in November.

Creditors, including Gemini, have been working behind the scenes to find a solution for nearly two months. On January 2, Winklevoss posted his first open letter to Silbert on Twitter, accusing him of bad faith stall tactics and asking him to commit to a resolution by January 8.

A DCG spokesperson said this was another desperate and unconstructive publicity stunt by Cameron Winklevoss to deflect blame away from himself and Gemini, who are solely responsible for operating Gemini Earn and marketing the program to its customers. We preserve all legal remedies in response to these malicious, false and defamatory attacks, adding that DCG will continue to engage in productive dialogue with Genesis and its creditors.

Stéphane Ouellette, Managing Director of FRNT Financial Inc, an institutional crypto platform, says some clients bought GBTC although the trade was by no means a slam dunk.

There are likely two major factors: first, traders are pricing in an increased likelihood of an outcome that involves other Silbert-related assets, and second, a slight reversal in some bearish crypto trades, Ouellette said. We’ve seen some customers take a kick at the spread. The trade has been a complete widowmaker, so there is certainly some trepidation about going back, in a big way.

GBTC traded flat on Tuesday. It had fallen 76% last year, while Bitcoin fell 64%.

–With the help of Olga Kharif.

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