Ark Invest, the investment firm led by Cathie Wood, has purchased another 176,945 shares worth about $1.4 million in Grayscale’s Bitcoin Trust (GBTC) fund, according to an investor email seen by Decrypt.
This is the firm’s second large GBTC purchase in just as many weeks.
According to Bloomberg, the Florida-based investment fund bought nearly 315,000 GBTC shares totaling $2.8 million last week.
Ark Invest’s GBTC holding over time. Source: Ark Invest.
Ark buys in despite GBTC concerns
GBTC is a financial vehicle that lets investors gain exposure to Bitcoin without needing to buy and hold the asset. The Bitcoin backing GBTC is custodied by Coinbase.
Following the collapse of FTX, major centralized cryptocurrency exchanges have disclosed their customer fund reserves to regain user trust.
Grayscale, however, abstained from disclosing details about GBTC’s Bitcoin backing, citing “security reasons.”
6) Coinbase frequently performs on-chain validation. Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.
This move created chaos among cryptocurrency investors surrounding GBTC’s liquidity, widening its infamous discount.
Per Grayscale’s latest announcement, the company’s GBTC underlying is valued at $9.9 billion, reflecting a holding per share (GBTC) of $14.43.
But the market price of GBTC is around $8.28, a whopping 42.6% discount from the underlying Bitcoin value. Last Friday, the GBTC discount hit an all-time high of 45.08%, according to data from Ycharts. This means that GBTC shares trade for less than the net value of Bitcoin.
GBTC discount is nothing new. Since February 2021, shares in GBTC have traded at a discount to the underlying asset.
One of the primary reasons why this discount has emerged is because there is currently no mechanism to redeem the underlying asset. If that were the case, then it would be easy for arbitrageurs to buy the discounted asset and redeem it for Bitcoin to turn a profit.
Instead, the only option is to sell the shares, a market force stirred on by the industry’s ongoing liquidity crunch.
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