Grayscale Bitcoin Trust's Premium Closes, Ending Popular Arbitrage Strategy

According to Bloomberg, Grayscale Bitcoin Trust's (GBTC) premium closed at 0.02% to its net asset value as of Thursday, ending one of the most popular arbitrage strategies in the crypto market. Hedge funds would borrow in Bitcoin, exchange the coins with GBTC for shares, and then offload those shares in the secondary market after a lock-up period. This trade soured after physically-backed Bitcoin ETFs were introduced. The closing of GBTC's premium represents the end of an unfortunate chapter in crypto's history. GBTC, a roughly $21 billion fund, had effectively operated as a closed-end fund without a redemption mechanism. Now, as an ETF, specialized traders known as authorized participants work with the sponsor to create and redeem shares, keeping GBTC's price in line with its net-asset value. Grayscale retains the support of a considerable population of Bitcoin enthusiasts, who view its triumph over the Securities and Exchange Commission as a potentially precedent-setting event in crypto's path to acceptance. Since it began trading as an ETF, GBTC has shed more than $5.8 billion, while its newly launched peers have all posted inflows. The price of Bitcoin has fluctuated wildly amid the rollout, currently trading near $43,000. In addition to exiting arbitrage players, GBTC's relatively high fees are likely also fueling the outflows. GBTC charges 1.5%, which is below the 2% fee it carried in its previous form, but still higher than its competitors. High costs will likely continue the withdrawals, according to FRNT Financial's CEO and co-founder, Stephane Ouellette.