Home » ETF: Ark Invest buys $2.8m of GBTC at 40% discount

ETF: Ark Invest buys $2.8m of GBTC at 40% discount

by Patricia

Ark Invest, Cathie Wood’s investment fund, has taken advantage of GBTC’s 40% discount to Bitcoin to invest $2.8 million for its own ETF.

Ark Invest puts faith in Grayscale’s GBTC

As Grayscale’s GBTC investment product struggles to get approval from the Securities and Echanges Commission (SEC) to be turned into an ETF, Cathie Wood’s Ark Invest investment fund has chosen to take advantage of the downturn. On Monday, the fund bought 315,000 shares of GBTC for $2.8 million.

If Bitcoin is at historic lows, this is even more true for GBTC. The GBTC is currently trading at 37-40% below its actual value, which is the price of the CoinDesk Bitcoin Price Index (XBX) it is supposed to track:

Figure 1 - Gap between the real value of GBTC and its market price

Figure 1 – Gap between the real value of GBTC and its market price


This gap is due to the construction of the fund itself. When it was launched, institutional investors exchanged Bitcoin (BTC) for GBTC shares. This was profitable at the time, as the spread was favourable before the trend reversed. The players involved in this arbitrage relied on the promise that they would come out ahead when GBTC was converted into an ETF.

However, this manoeuvre required a lock-in period, and when the market price fell below the real value, several funds such as Three Arrows Capital (3AC) found themselves in losses.

The two overlaying charts below show the evolution of the GBTC and its underlying XBC:

Figure 2 - Evolution of the GBTC and XBX

Figure 2 – Evolution of the GBTC and XBX

A risky but potentially very lucrative bet

If and when the GBTC actually becomes an ETF, Ark Invest will have made a very good move in this deal. But SEC validation is slow in coming, and the gap between GBTC and XBX continues to grow as investors lose patience.

However, remembering the famous adage “buy at the sound of the gun”, the current market condition shows that we are on a long-term low.

Moreover, a $2.8 million position is small compared to the financial strength of Ark Invest, which greatly limits the risk.

The shares purchased were added to the ARK Next Generation Internet ETF (ARKW). The latter has a 4.98% weighting in GBTC. In this basket of assets, we can also find shares in Tesla, Zoom, Coinbase, Shopify and Block.

With so much exposure to technology stocks, the ARKW is unsurprisingly down almost 75% from its all-time high in April 2021:

Figure 3 - ARKW ETF price

Figure 3 – ARKW ETF price


If the SEC eventually approves the GBTC, it could become the first Bitcoin-backed Spot ETF recognized by the US financial regulator. This could bring confidence to an ecosystem that is paying for the mismanagement of Sam Bankman-Fried and his companies

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