BlackRock’s new move in the bitcoin ETF race appears to be boosting one of its potential rivals in the space and creating arbitrage opportunities for opportunistic traders. Grayscale Bitcoin Trust (GBTC), which has long traded at a steep discount to its net asset value, rose 12.8% on Friday after BlackRock filed to launch a spot bitcoin ETF. Grayscale Fund continued to surge on Tuesday, up about 14%. While bitcoin has also been climbing, the sharp move in GBTC has narrowed the discount to about 36 percent as of Friday, from about 43 percent a week ago, according to The Block. Grayscale is in a legal battle with the SEC over the conversion of its GBTC into an ETF. A decision in the case is expected later this year. “I’d say the narrowing of the discount may be partly related to the BlackRock filing, but also because there is a growing perception that Grayscale has an increased chance of winning its case against the SEC,” said Bryan Armour, head of passive research strategy at North. America on Morningstar. GBTC 5D Mt. Grayscale Bitcoin Trust has outpaced Bitcoin in recent days. Grayscale does not offer a redemption mechanism for GBTC, which would help close the discount gap, but it does use ETFs. If GBTC were to be converted into an ETF, buying it now at a discount would give traders additional upside as the price of Bitcoin rises. Armor said offering redemptions outside the ETF process could lead to significant outflows that would hurt Grayscale’s fund’s profitability. The fund manages about $16 billion in assets and charges a 2% annual fee. BlackRock’s move may indicate that some of Wall Street’s heavyweights are at least quietly supporting the cryptocurrency industry, especially bitcoin ETFs. The proposed BlackRock fund will also use Coinbase as a custodian for cryptocurrencies, despite Coinbase being recently sued by the SEC. Regulators have long opposed spot bitcoin ETFs, and Chairman Gary Gensler has stepped up enforcement of the crypto industry in recent months. But even if Grayscale wins the case, there is some uncertainty about its next steps. Some experts have suggested that the SEC could respond to the ruling by banning already listed bitcoin futures ETFs rather than allowing spot funds to proceed. Pat Tschosik, senior portfolio strategist at Ned Davis Research, said regulators could also choose to allow the BlackRock fund instead of Grayscale to switch because of discrepancies in the filings. “If BlackRock gets an ETF, I’d want to own a BlackRock ETF. I don’t want to own Grayscale. I still don’t see a clear path unless you can somehow change Grayscale to do what BlackRock did Everything,” Joshick said. Ned Davis Research recommended buying GBTC in January, but closed the trade recommendation in May. According to the NDR, the paper gain on the deal was 32.3%. Tschosik said the discount tends to widen and shrink depending on broader sentiment about the direction of bitcoin. In any case, a bitcoin ETF does not appear to be launching until at least 2024, said William Cai, co-founder of cryptocurrency-focused asset manager Wilshire Phoenix. “Actually, in a best-case scenario, it might take a year and a half to launch a bitcoin ETF,” Cai said. Wilshire Phoenix’s wShares is in the process of registering its own bitcoin trust, but the product is not an ETF. Another consideration for investors betting on a discounted close is that GBTC trades over-the-counter, meaning it is subject to fewer rules and potentially less liquid than traditional exchanges. “The difference between an OTC and an exchange is that it’s a broker-dealer network and doesn’t have many of the same protections and regulations as an exchange. For most people this really won’t affect trading GBTC, but it will bring more risk,” Armour said. Grayscale did not respond to a request for comment for this story.