Following the FTX bank run, which accelerated by Nov. 7, Bitcoin (BTC) price started to buckle and, at the time of writing, lost 21% in five days. Among the victims of the swift market meltdown is the worldโs largest institutional Bitcoin fund, the Grayscale Bitcoin Trust (GBTC).ย
On Nov. 9, the GBTC closed at a record discount of 41%,ย with a price per shareย standing at $8.76. Overall, the GBTC has been gradually declining for almost a year since its peak position of $51.47 per share on Nov. 12, 2021.
A structural problem of GBTC lies in the fact that itโs an investment trust fund with its shares not freely createdย nor offering a redemption program. This inefficiency creates significant price discrepancies versus the fundโs underlying Bitcoin holdings.
That is why Grayscale has been reportedlyย trying to convert the GBTC to an exchange-traded fund (ETF),ย which allows the market maker to create and redeem shares, ensuring the premium or discount is, at most times, minimal.
The firm has been waiting for a final decision from the Securities Exchange Commission (SEC) since filing its application in October 2021. On June 29, SEC officially denied Grayscaleโs application to convert GBTC to a spot Bitcoin ETF. Then Grayscale decided to go to court โ on Oct. 11, it filed the opening legal brief to challenge the SECโs decision.
The current market crisis began on Nov. 2, after reports that a leaked balance sheet from the Sam Bankman-Fried-founded trading firm Alameda Research suggested the company held a significant amount of FTX Token (FTT), the native token of the FTX cryptocurrency exchange. A large trading firm holding so much of one asset concerned the crypto community and brought questions regarding the relationship between Alameda and FTX.
Related: FTX and Binanceโs ongoing saga: Everything thatโs happened until now
The situation has been unfolding rapidly since that day, leading to a full-scale โbank-runโ of FTX users who began to withdraw their funds from the exchange. Reported data from Nansen on Nov. 7 showed stablecoin outflows on FTX reached $451 million over seven days.
