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thesis summary

Grayscale Bitcoin Trust (OTC:GBTC) was up big on October 16, following the October 13 news that the SEC would not appeal a court ruling that the SEC arbitrarily rejected Grayscale’s ETF application. Had given.

This potentially paves the way for ETFs to be approved, which in turn paves the way for a flood of institutional money.

Over the past few months, GBTC discounts have declined. However, there is still a discount of about 16%, and for this reason, GBTC may continue to outperform Bitcoin (BTC-USD).

But what if the ETF is approved? This news could turn into a sell event, as Bitcoin will no longer have a catalyst for ETF approval.

SEC does not fight the decision

Friday was the deadline for the SEC to appeal the court’s ruling that found it arbitrarily rejected Grayscale’s ETF application.

The latest ETF application was rejected on the grounds that Grayscale could not protect investors from market manipulation. This led GBTC to sue the SEC, revealing that the SEC had already approved Bitcoin futures after taking certain monitoring measures. Both futures and spot ETFs depend on the price of Bitcoin, so how is the market “safe enough” for futures trading but not for ETFs?

Well, the court listened and, in fact, sided with Grayscale, saying that the SEC had arbitrarily rejected their application.

The SEC has not appealed this decision. So what will happen next?

The court is expected to issue a decision explaining what happens next, but most likely this will mean the SEC will have to reconsider Grayscale’s application.

This does not mean that the ETF will definitely be approved, but, at the very least, the SEC will have to find a more valid reason to reject the application.

Institutions waiting on the sidelines

Of course, there are two important factors to consider when it comes to GBTC and Bitcoin.

First, the approval of the ETF will act to close the existing discount to GBTC’s NAV.

GBTC discount (YCharts)

GBTC still trades at a discount to its intrinsic value. In other words, its Bitcoins are worth more than the current share price. A spot ETF would introduce a mechanism for funds to arbitrage this discount, which would serve to eliminate it.

As we can see, the discount is already narrowing, perhaps in anticipation of ETF approval. The discount, which once reached nearly 40%, has now dropped to 15%.

On top of this, ETF approval will serve to capture a larger share of institutional and retail traders.

This growing interest can actually be seen in recent flow data:

Digital asset investment products have seen consistent inflows of $15 million for three consecutive weeks, even though trading volumes are currently 27% below the 2023 average, according to data released on Monday.

Source: investment.com

This data also points to an interesting dichotomy, which is that while flows are increasing, volumes are decreasing, and this is actually having some strong effects on the market.

bitcoin volatility

Bitcoin has been incredibly volatile over the past few months. If we look at the charts, we see long periods of “inactivity”, where the price remains almost stable, and then large increases, as we are seeing today.

This shows that there is a lack of liquidity in the current market. It seems like small quantities are having a big impact on price.

This recent surge is proof of this. In fact, after a post on

Bitcoin (BTC) surged from $27,900 to $30,000 after false reports of spot ETF approval were posted on social app

Source: CoinDesk

In my opinion, these wild moves and liquidations are not great. Bitcoin needs to establish itself as a liquid market, and I plan that ETF approval will also contribute to this,

GBTC vs BTC

Since Bitcoin hit its bottom in late 2022, GBTC has actually outperformed Bitcoin by a considerable margin.

GBTC vs BTC (Trading View)

GBTC is up more than 150%, while Bitcoin is “only” up 59%. The reason for this can be considered to be less discount.

As I mentioned earlier, the discount is now 16%, but there may be even more juice left to squeeze. Discounts can easily become premiums, something that is not unprecedented.

GBTC Discount/Premium to NAV (Ycharts)

Back at the height of the bull market, GBTC premium approaches 40%

technical outlook

With this new high in GBTC, chances are increasing that we are at the beginning of a much bigger rally.

GBTC TA (Author’s work)

The way I see it, the move we saw to $22 was an early wave 1. The selloff to $17 was our wave 2, and now we can start another impulse into our big-degree wave 3.

Taking the length of our wave 1 and measuring from the bottom of our wave 2 will give us at least $31 protection for wave 3, which will be the 1 extension. However, more likely is that we could reach the 1.619 extension, which would take us to $40.

alert

Although I’m really bullish on GBTC, there are some potential risks here.

First of all, all investors should know that owning GBTC is very different from owning and storing your own BTC. As the old saying goes, neither your keys nor your crypto.

On another note, I believe ETF approval may act as a double-edged sword. While I believe this will be bullish overall, I believe that once the ETF is approved, we may see Bitcoin and GBTC struggle. Once an ETF is approved, Bitcoin may need to find another catalyst to spark interest.

And on that note, while I mentioned above that GBTC could trade at a premium, it’s highly unlikely that a spot BTC ETF will actually be approved, if at all. As the discount will be removed, the premium will also be removed.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these shares.

source: seekingalpha.com