GBTC’s Discount to NAV Hits New Record Low after SEC Declining its Bitcoin Spot ETF Application

The shares of the Grayscale Bitcoin Trust (GBTC) saw a new record low of -31% last Thursday, June 30; that is, GBTC’s discount hit -31%, its lowest point in history.

The discount means the market price of GBTC shares is over 31% lower than its net asset value (the value of the underlying Bitcoin).

Before the news regarding U.S. Securities and Exchange Commission (SEC) ‘s rejecting Grayscale’s application to turn its GBTC instrument into an ETF last Wednesday, the GBTC discount was 28.4%.

Investors in the Grayscale Bitcoin Trust (GBTC) face more losses as the popular investment product widens its record discount.

GBTC has long been an investment product of choice for several institutional investors, providing them exposure to Bitcoin without the need to buy the underlying asset.

However, the offering has many drawbacks, including a six-month lockup period and an annual management fee of 2%.

There are several factors behind the poor performance of GBTC. The current discount potentially means a weakening interest in the asset, as there is more GBTC supply than demand. This indicates a bearish signal of broader institutional sentiment towards Bitcoin. Furthermore, new competitive products in the market, like Canadian Bitcoin exchange-traded funds (ETFs), also give new alternatives to investors.

GBTC’s record low comes as Bitcoin struggles below the $20,000 mark. The crypto market has extended its losses as several major crypto coins are in a bloodbath. Bitcoin was trading at $19,080 per coin during the Asia trading sessions on Monday local time. Wider cryptocurrencies have further plunged as investors maintained a panic selling after the recent liquidation of crypto hedge fund- Three Arrows Capital (3AC).

Further Road Ahead

Grayscale considers the conversion of GBTC into a Bitcoin ETF as the best solution. The company recently said it is “100% committed” to turning the investment product into a Bitcoin ETF. However, it appears that the regulatory environment in the U.S. is still not ready.

Last week, Grayscale sued the SEC a few hours after the regulator rejected its application to convert its flagship Grayscale Bitcoin Trust product (GBTC) to an exchange-traded fund (ETF).

Last Wednesday, the SEC turned down Grayscale’s application for a spot Bitcoin ETF, citing the investment management firm’s failure to answer questions about market manipulation concerns. The regulator is concerned investors would lack adequate protections under the Grayscale proposal.

In the past, Grayscale had piled pressure on the regulator to side with its application. In early May, Grayscale met privately with the SEC to persuade the watchdog to approve the conversion of its GBTC into an ETF.

Converting the Grayscale Bitcoin Trust into a NYSE-traded exchange-traded fund (ETF) would widen access to Bitcoin, enhance protections, and unlock up to $8 billion in value for investors. And a discount would disappear upon conversion, that is, according to Grayscale.

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XRP Price Slumps as SEC’s Ripple Lawsuit Worries India’s Crypto Exchanges

Cryptocurrency exchanges in India have expressed shock by the recent announcement of the US lawsuit against Ripple Labs Inc. - 2020-12-26T110924.898.jpg

The US Securities and Exchange Commission (SEC)’s suit against Ripple blockchain company has caused a decline of XRP’s price. However, India’s crypto exchanges have shunned restricting their trading on the cryptocurrency, but they are keenly monitoring the issue.

Siddharth Menon, the chief operating officer and co-founder of WazirX India’s biggest cryptocurrency exchange by volume, recognized the SEC’s lawsuit against Ripple as a shocking incident. He said: “Given the uncertainty of this situation, we will continue monitoring the lawsuit development and then take the necessary steps.”

Menon described XRP as one of the most popular crypto assets in India, saying that the token has been among the top trading cryptocurrencies on WazirX. 

Apart from that, Neeraj Khandelwal, the co-founder of CoinDCX cryptocurrency exchange, mentioned that they are keenly following the developments and waiting for more information on the concern before they can take a decision.

Crypto experts also made a distinction between XRP and other cryptocurrencies. For example, Gaurav Dahake, CEO of Bitbns crypto exchange, said: “Cryptos like Bitcoin and Ethereum can be mined by anyone. There is no issuer and owner. This was never the case with XRP. Ripple Labs owned 98% of it and issued a little bit every year. The company set the supply (100 billion tokens). This makes it more like a security than a cryptocurrency.”

The lawsuit is also likely to influence regulatory authorities in other nations, including India.

Alleged Illegal Security Offering

The SEC case claims that XRP is a security rather than a currency and therefore the cryptocurrency provider should have sought prior approval from the US securities regulator for intent to launch it. The agency further argues that Ripple blockchain company and two of its executives raised more than $1.3 billion through conducting unregistered digital asset securities offerings.

On December 22, the SEC charged Ripple Labs Inc for an unregistered security offering, claiming that XRP was a security rather than a currency. Firms intending to issue securities in the United States are required by the law to file with the SEC. The lawsuit tussle has caused a drop of the XRP price by 50% from $0.56 on December 21 to about $0.28 on December 24. On December 25, the cryptocurrency traded at about $0.33, a little above its recent lows.

Image source: Shutterstock


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