According to insiders, a few hedge funds have reportedly made successful speculations on the approval of a Bitcoin ETF by strategically investing in the GBTC prior to regulatory approval.

These hedge funds purportedly acquired shares of the GBTC between 2021 and 2023, anticipating a surge in value upon the SEC granting approval for a Bitcoin ETF.

Grayscale had been seeking to convert its trust fund into an ETF since 2016, facing regulatory obstacles. Following a rejection of Grayscale's new application in 2022, the company filed a lawsuit against the SEC.

Upon the SEC's approval of a Bitcoin-tracking ETF in the United States, the Grayscale Bitcoin Trust transitioned into an ETF (GBTC.P) on January 11th, 2024.

For certain hedge funds, the potential gains associated with the approval of an ETF presented a lucrative opportunity. In Q4 2022, Fir Tree Partners, managing $30 billion in assets, reportedly seized the opportunity when Grayscale's trust fund traded at a 42% discount. The company placed a $60 million bet on the narrowing of the price disparity. Following a court ruling in September 2023, Fir Tree began exiting its position in January of the following year.

Another hedge fund, Hunting Hill, invested in GBTC when the discount was 42%, closing its position when the discount shrank to 7% last year.

A founder of a U.S.-based macro hedge fund characterized the SEC's rejection of Grayscale's application in August as a mistake, strengthening his belief in eventual approval. He referred to this as the "trade of the century."

Christopher Brown, founder of the Kentucky-based multi-strategy hedge fund Aristides Capital, commented, "It's a very good trade." His $240 million firm invested around $20 million in GBTC with an average discount rate of 30%, but now, as Brown is not enthusiastic about investing in a Bitcoin ETF, the fund has sold most positions and plans to fully exit in the coming months. "We're not super excited about Bitcoin fundamentally."