Grayscale $2 Billion Rally Leads Day of Revelry Across Crypto

The defeat of efforts to block a Bitcoin exchange-traded fund unleashed gains across the crypto space, including a $2 billion rally in the fund at the center of the controversy.

(Bloomberg) — The defeat of efforts to block a Bitcoin exchange-traded fund unleashed gains across the crypto space, including a $2 billion rally in the fund at the center of the controversy.

Grayscale Investments’s Bitcoin trust — which is known by its ticker GBTC — notched a roughly 21% rally on Tuesday, helping it to meaningfully outpace gains seen by Bitcoin itself, which rose nearly 7% to trade above $27,700. The rally happened after the crypto asset-manager scored a legal victory in federal court in its bid launch the first Bitcoin ETF in the US, a key development for the digital-assets industry. 

The trust’s outperformance narrowed its discount to its underlying Bitcoin holdings to less than 17% in New York on Tuesday, according to a calculation from Bloomberg Intelligence. That’s a significant tapering of the gap, which earlier this year stood at more than 45% and at around 25% the day prior. Tuesday’s advance was GBTC’s biggest one-day rise since July 2021.   

The gain lifting Grayscale reflected bets that should an ETF structure now be adopted, the fund will stop trading at a significant discount to the Bitcoin it holds. That spread, left open when there was no easy way to redeem shares of GBTC in its existing form, was a source of pervasive stress among crypto investors who lost billions of dollars betting it would one day narrow.

“This is huge for crypto ETFs and for Grayscale. But it’s really specifically about Bitcoin and maybe a little about Ethereum as well,” said James Seyffart, an analyst at Bloomberg Intelligence. “That said, this doesn’t mean unequivocally that we are immediately going to see GBTC convert into an ETF or get spot-Bitcoin ETF approvals. Though it makes it more likely.”

Read more: US Court Paves Way for First Bitcoin ETF in Grayscale Ruling

Other cryptocurrencies also rallied, with Ether adding more than 5% at one point to trade around $1,730. Dogecoin, Binance Coin and others also gained. Shares of Coinbase Global Inc., the largest US crypto exchange, rose as much as 17%, while crypto-centric stocks like Riot Platforms Inc. and MicroStrategy Inc. also surged. 

Industry watchers — many of whom predicted that Grayscale could come out victorious in its battle against the US Securities and Exchange Commission — are now trying to decipher what the timeline might look like for any potential conversion of GBTC into an ETF, as well as what Tuesday’s news means for the many other issuers who have applications out for a spot-Bitcoin fund. Grayscale, following the ruling, said it was reviewing the details outlined in Tuesday’s opinion and would be sharing more information on the conversion process “as soon as practicable.”

Given that crypto backers have for years argued a spot-Bitcoin ETF was needed, the news out Tuesday was being seen as significant milestone for the industry. US regulators have time and again rejected filings by issuers going back a decade, with officials citing fraud and market manipulation among the reasons for denying such a fund for trading. 

“Grayscale’s win is a huge victory for all potential spot-Bitcoin ETFs — not just for Grayscale,” said Roxanna Islam, associate director of research at VettaFi. “While we will still have to wait and see how the SEC handles its execution, it is likely that they will have to approve Grayscale’s spot ETF along with other pending spot-Bitcoin ETF filings.”

Here’s what others are saying:

“From a symbolic standpoint, it is a good thing for the industry,” said Owen Lau, analyst at Oppenheimer & Co. “I think there’s huge optimism baking into the market right now. People are expecting the first spot-Bitcoin ETF being approved in the near term. I feel like the market is pricing too fast, too quickly at this point.”

“Grayscale discount caught a huge bid on the news,” Shiliang Tang, chief investment office at crypto investment firm LedgerPrime, said. “A lot of people were expecting the news to break one way or another the past two weeks, but nothing came out only more delays, so the market were caught a bit offsides here in general on the news.”

BlackRock Inc. had kicked the spot-Bitcoin-ETF race into high gear when it filed an application for such a product, setting off a broader rally in cryptocurrencies markets. Issuers including Bitwise, VanEck, Invesco, Fidelity, Valkyrie and others have applications out as well. The SEC is expected to respond to a slew of filings before the Labor-Day weekend and can reject, approve or delay. 

“The ruling has led people to speculate that a wave of spot BTC ETFs, many of which include partnerships with Coinbase, could be approved shortly,” said Riyad Carey, research analyst at Kaiko. “It’s still unclear how this will shake out but, given that volumes have been near multi-year lows, this will likely create a burst of activity across crypto markets that could help boost volumes as we head into the fall.”       


–With assistance from Katie Greifeld, Yueqi Yang and Muyao Shen.

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