FTX to Liquidate GBTC Holdings: How Will You Be Impacted?

This year, GBTC shares took a giant leap, rising by a whopping 220% to reach $26.79. This impressive increase indicates that investors are getting on board early. The main reason for this remarkable rise is the big drop in the discount on Grayscale’s Bitcoin Trust (GBTC), which fell from a huge 50% last year to a more modest 15%.

This change is thanks to Bitcoin picking up steam again and the growing hope that the U.S. Securities and Exchange Commission (SEC) might give the green light for it to become a spot ETF.

To address the concerns about the GBTC discount, the SEC might approve a Spot Bitcoin ETF before GBTC sales. But there’s also a chance they might say no. Let’s see why this uncertainty exists.

Taking a Cautious Approach

Meanwhile, the insolvent cryptocurrency exchange FTX has substantial GBTC holdings, worth around $417 million. What’s surprising is they’ve hinted at giving these funds back to creditors in regular money, not cryptocurrency.

They plan to carefully trade their assets, including big holdings of SOL ($1.6B), bitcoin ($560M), and ether ($192M), to avoid causing trouble in the market. GBTC, the biggest crypto fund globally, manages a whopping $21 billion in bitcoin assets.

GBTC Regains Ground

The recent reduction in GBTC’s discount is partly because people are more hopeful about Bitcoin, and there’s a chance the SEC will give the green light. But in the background, there’s a lawsuit against its parent company, Digital Currency Group, which could make a big difference in its change into an ETF.

Insights from Scott Johnsson

Scott Johnsson, a partner at Van Buren Capital, has some valuable insights. He thinks that the bankruptcy reorganization plan for FTX could get the nod in the second quarter of 2024. At the same time, the market is eagerly waiting for the SEC’s decision on spot Bitcoin ETFs. If GBTC turns into an ETF by then, the sale of GBTC from the FTX estate shouldn’t have a big impact on its discount. That’s because the ETF process should closely follow the price of Bitcoin itself.

A Huge Decision Awaits

But if the SEC says no to Grayscale’s request for different reasons, it could have a bad effect on the discount. Sean Farrell, the head of crypto strategy at Fundstrat, thinks that if the SEC says yes to a spot ETF, it could not only make creditors happy but also make GBTC’s discount go down a lot, which could raise the prices of crypto assets.

Investor Confidence: A Positive Sign?

On the other hand, the fact that the discount has gone down from over 40% when BlackRock and others applied for spot Bitcoin ETFs in June is a good sign. It means that investors are more sure that GBTC will become an ETF. This could make more people want to buy GBTC shares, which could raise the price even more. So, even though there’s a chance the SEC might not approve the ETF, it’s not very likely.

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Now that the SEC has decided not to appeal the Grayscale ruling deadline, the court can tell the regulator to take another look at turning Grayscale’s GBTC into a spot Bitcoin ETF. But there’s still a chance that the SEC might find different reasons to say no.

Read More: Gensler Fuels Hope for Bitcoin ETF Approval, Says 8–10 Applications Under Review