Amid the 2022 crypto winter and the collapse of exchange operator FTX, the Grayscale Bitcoin Trust (GBTC) spent time in a negative spotlight, but with bitcoin rebounding to start 2023, benefits could accrue to GBTC.
In fact, some market observers believe that GBTC has the potential to double by the middle of this year. That’s the forecast put forth last week by Pat Tschosik, a senior portfolio strategist at Ned Davis Research.
“We recommend GBTC … as a way to play Bitcoin because it has a potential ‘discount to NAV kicker’ meaning not only would it rise if Bitcoin rises, but also from closing its current large 35% discount to NAV,” Tschosik wrote in a report.
Assuming that forecast proves accurate, there would likely be tangible benefits for a variety of equity-based crypto-correlated exchange traded funds, including the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
BLKC, which turns two years old in October, has 55 holdings, and that roster is led by a nearly 15% allocation to GBTC. For its part, SATO has 35 components, and GBTC is by far the largest, commanding a weight of 14.57% in that ETF. Translation: What’s good for GBTC could very well prove to be positive for BLKC and SATO.
Ned Davis Research acknowledges that GBTC isn’t a risk-free bet, noting that the bitcoin index fund could jump 100% or fall another 33%. However, the research firm also pointed out that the issuer could take steps to narrow the fund’s discount to its net asset value (NAV).
“One way for GBTC to close the discount would be to allow investors to withdraw their investment, Tschosik said. Grayscale does not offer a redemption program for the fund, meaning that investors can only exit their position by selling their shares to another investor,” reported Jesse Pound for CNBC.
Of course, if regulators would allow GBTC to convert to an ETF, the discount to NAV issue would likely be ameliorated and bitcoin prices could potentially rise as more investors flock to the fund, perhaps benefiting BLKC and SATO along the way.
“There is currently no ETF that tracks spot bitcoin in the United States, and the Securities and Exchange Commission has repeatedly declined to allow those products from Grayscale and other firms. Grayscale has sued the SEC over the decision to reject its conversion plan,” according to CNBC.
vettafi.com is owned by VettaFi, which also owns the index provider for BLKC and SATO. VettaFi is not the sponsor of BLKC and SATO, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.