Osprey Bitcoin Trust: A Liquidation Play With Limited Upside

Osprey Bitcoin Trust: A Liquidation Play With Limited Upside

Osprey Bitcoin Trust (OBTC) is a closed-end fund that provides exposure to Bitcoin. In recent months, the fund has traded at a discount to its net asset value (NAV). This discount has narrowed in recent weeks, but it remains wide enough to make OBTC a potentially attractive investment for those seeking exposure to Bitcoin at a discount.

Tender Offer Termination and Suitors

A few weeks after Osprey announced a tender offer to buy as much as 20% of the OBTC shares outstanding at NAV, it was terminated. This sent the NAV ratio plummeting to 32% at the end of February. However, the discount rate quickly recovered to its current range when Osprey announced its intention to sell the fund to an existing ETF manager.

Sale More Likely?

There are now roughly a dozen spot Bitcoin ETFs in the United States market. Any one of them could theoretically be a suitor for OBTC. However, the fund’s management fee is higher than what the market rate currently is for many of these competing funds. This makes it unlikely that an ETF issuer would purchase OBTC and reduce the expense ratio in line with current levels.

Liquidation Play

Given the high management fee and the limited potential for a sale, OBTC is more likely to be liquidated. This means that OBTC shareholders will get closure on this one way or another. In the event that Osprey can’t find a suitor for the fund’s assets, the company will sell the Bitcoin held by the fund and dispense the capital back to shareholders.

Risks

The risk in buying OBTC for the shareholder payout is that the price of BTC is still very volatile. Also, if a speculator were to buy OBTC at a 7% discount only to see the price of BTC decline by 8% before fund liquidation, the trade didn’t really work.

Summary

OBTC is worth a small position as a liquidation play. The best way to minimize entry price risk before a potential liquidation would be to buy OBTC in small increments between now and the end of August when the fund would hypothetically be dissolved.