Hedge Funds That Capitalized on the ETF Approval Prospects
Around 20 hedge funds—from both small and large firms—leveraged this opportunity, including hedge fund Fir Tree Partners, which manages $3 billion in assets. According to an insider, Fir Tree Partners recognized the potential in the last quarter of 2022, when Grayscale’s trust traded at a 42% discount to its assets. Their total investment to capitalize on the price dislocation closure amounted to $60 million.
Although Fir Tree declined to comment, the firm began exiting its position in September the following year after the court’s decision. It completely divested itself of GBTC shares in January, coinciding with the regulatory approval of the Bitcoin ETF.
Hedge fund Hunting Hill also engaged in the GBTC investment when it traded at a 42% discount, only closing its position when the discount narrowed to 7% in the previous year, according to an informed source. A U.S.-based macro hedge fund founder cited a court ruling from August of the same year, which determined that the SEC had wrongly rejected Grayscale’s application, as a contributing factor that further solidified their conviction in the trade.
It is worth noting that not all funds involved in the GBTC investment are reinvesting the proceeds in the bitcoin market. Over $4.77 billion has been withdrawn from the GBTC since its recent launch, thus reducing the ETF’s assets to $20.4 billion.
For numerous portfolio managers, this price arbitrage opportunity proved lucrative. Christopher Brown, founder of the Louisville, Kentucky-based multi-strategy hedge fund Aristides Capital, described the investment as a very successful trade. Aristides Capital, managing around $240 million, allocated roughly $20 million to GBTC at an average discount of 30% to its assets. The fund has largely liquidated its positions and plans to exit completely in the coming months, as Brown has no interest in investing in the spot bitcoin ETF.