Ark Invest, Cathie Wood’s investment fund, took advantage of GBTC’s 40% discount to Bitcoin to invest $2.8 million for its own ETF.
Ark Invest trusts Grayscale’s GBTC
While Grayscale’s GBTC investment product struggles to obtain Securities and Exchanges Commission (SEC) approval to be converted into an ETF, the investment fund Cathie Wood’s Ark Invest opted to take advantage of the decline. Indeed, the fund bought on Monday 315,000 GBTC shares for $2.8 million.
If Bitcoin is at historic lows, this is all the more true for GBTC. Indeed, the latter is currently traded on the market at a price of 37 to 40% less than its real valuenamely the price of CoinDesk Bitcoin Price Index (XBX) that it is supposed to follow:
Figure 1 – Difference between the real value of GBTC and its market price
This discrepancy comes from the very construction of the fund. When it was launched, institutional investors exchanged Bitcoin (BTC) for shares of GBTC. This was profitable at the time, as the spread was favorable before the trend reversed. The actors participating in this arbitration therefore relied on the promise of emerge a winner when the GBTC would be converted into an ETF.
However, this maneuver required a blocking period, and when the market price fell below the real value, several funds like Three Arrows Capital (3AC) found themselves in losses.
The two graphs overlaid below show the evolution of GBTC and its underlying XBC :
Figure 2 – Evolution of GBTC and XBX
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If and when the GBTC actually becomes an ETF, Ark Invest will have done very well in this operation. But SEC validation is a long time coming, and the gap between GBTC and XBX keeps growing as investors lose patience.
However, if we remember the famous adage ” buy to the sound of cannon “, the current market condition shows that we are at a long-term low point.
Additionally, a position of $2.8 million remains weak in comparison of the financial power of Ark Investwhich greatly limits the risk.
The shares purchased came to strengthen the ETFARK Next Generation Internet ETF(ARKW). The latter sees the GBTC representing 4.98% of its composition. In this basket of assets, we can also find Tesla, Zoom, Coinbase, Shopify or Block shares.
With such exposure to technology stocks, the ARKW is unsurprisingly displaying a devaluation of almost 75% since its all-time high in April 2021:
Figure 3 – ARKW ETF price
If the SEC eventually approves GBTC, it could become the first Bitcoin-backed Spot ETF recognized by the US financial policeman. It could then blow a wind of confidencein an ecosystem that pays for the mismanagement of Sam Bankman-Fried and his companies.
👉 Also in the news – Are there any murky ties between Sam Bankman-Fried and SEC Chairman Gary Gensler?
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Sources: Grayscale, Ark Invest, TradingView
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I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the gamble of betting everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
Vincent Mayor
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