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FTX debacle accentuates the fall of bitcoin fund Grayscale

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Key facts:
  • The GBTC fund share fell from $34.27 in January to $8.66.

  • Bitcoin ETFs have been strong competition for GBTC.

The world’s largest bitcoin fund, Grayscale’s GBTC, has depreciated 75 percent since the beginning of the year, and the fall in FTX has accentuated the decline in the last week. The share of bitcoin (BTC) contained in each share of the fund is valued 37 percent lower than the prevailing market price.

The fact that bitcoin-backed stocks are trading below the market price of BTC is nothing new. But this gap widened with the FTX crisis, which dragged other companies into liquidity problems.

On Wednesday, November 16, the GBTC fund fell 7 percent, due to to the announcement by Genesis Global Capital of the temporary suspension of withdrawals, as reported by CryptoNews. Both Genesis and Grayscale are owned by Digital Currency Group (DCG).

Grayscale fund share value.
Grayscale fund share value since the beginning of the year. Source: Yahoo.

The graph shows the evolution of the GBTC share price, which was trading at US$34.27 at the beginning of the year and at the time of writing has dropped by 75 percent to US$8.66. The value of the GBTC fund, in BTC under management, fell from US$42.8 billion at the beginning of the year to US$10.8 billion at the time of writing.

GBTC’s net assets peaked at $39.8 billion in October 2021. However, this pioneering fund has been undermined by the emergence of the first ETFs on bitcoin in Canada that year. The rates for these vehicles were generally less than half of the 2% per year charged by GBTC.

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Last June, Grayscale cited the U.S. Securities and Exchange Commission (SEC) for rejecting its request to convert the GBTC fund into an exchange-traded fund or ETF. The SEC noted that. There were risks of fraud and manipulation of the bitcoin spot market.through market participants having access to the shares of a bitcoin ETF and other unregulated markets.

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