Grayscale GBTC discount costs investors $3.1B, while $48B hedge fund gains exposure

• Grayscale’s Bitcoin Trust has been trading at a discount as it loses dominance while Canadian Bitcoin exchange-traded funds (ETFs) were approved.
• Investment firm Marlton is asking Grayscale to take action, as an estimated $3.1 billion was lost.
• Hedge fund giant Millennium Management had exposure to GBTC in March.

Grayscale’s Bitcoin Trust (GBTC) has been trading at a discount since February, as approved Canadian Bitcoin exchange-traded funds (ETFs) emerged. Famed hedge fund Millennium Management, which has $48 billion under management, has taken the discount as an opportunity to get GBTC exposure. 

Grayscale urged to take action against the discount

Since Grayscale’s Bitcoin Trust has been trading at a discount for the past two months, investment management firm Marlton, holding a substantial amount of GBTC, has asked the asset manager to conduct a tender offer of its shares.

Investors can purchase GBTC shares at net asset value (NAV), followed by a six-month lock-up before they can be sold in over-the-counter markets. If the price of GBTC drops below its NAV, they are trading at a discount. 

GBTC had been trading at a high premium — higher prices than the NAV — but has since been discounted since three Canadian Bitcoin ETFs were launched in the market. Grayscale has also recently announced that it looks to convert its GBTC to an ETF in the future, when the regulatory environment permits, in the United States.

While GBTC has sold at a premium for most of its existence, people can buy shares that cost more than Bitcoin, which also allowed them to cash out at a premium. 

The Grayscale Bitcoin Trust holds more than 3% of all Bitcoin in circulation. Marlton estimates that the discount is costing GBTC stockholders $3.1 billion, not including the 2% management fee for the fund. GBTC allows investors to get exposure to Bitcoin without buying the digital currency directly. 

Marlton is asking Grayscale to offer shareholders the option to cash out at a higher price than the GBTC’s market value. He stated:

It’s fine for new investors into GBTC since they’re getting a discount, but for long-term shareholders like Marlton it’s not right; and closed-funds like GBTC have a lot of mechanisms they can and do employ to close that gap.

For Marlton, the family office catered toward ultra-high-net-worth individuals, believing that Grayscale needs to take action by holding a Modified Dutch Auction Tender Offer for shares. Fundamentally, it would allow Grayscale to buy back shares in a short time frame for a predetermined value. 

The investment firm believes a tender offer would narrow the NAV discount, giving shareholders confidence in Grayscale to manage the fund’s discount. 

$48 billion hedge fund Millennium gets exposure to GBTC

One of the world’s largest hedge funds, Millennium Management, reportedly had exposure to GBTC as the NAV plunged. 

The multi-strategy hedge fund with $48 billion in assets under management had exposure to GBTC in March, as its shares fell steeply. Similar to other multi-strategy hedge funds, Millennium makes and loses millions of dollars on its balance sheet each day, and the GBTC trade would not be consequential for the firm. 

As another investment giant enters the market through GBTC, Wall Street sources believe that this could be another bullish indicator for Bitcoin as an asset class.