The Grayscale Bitcoin Trust (GBTC) saw its busiest trading session in 14 months, a frenzy triggered by a court loss for U.S. regulators that makes it more likely GBTC can be converted into an ETF that appeals to a broader collection of investors.

Nearly 20 million GBTC shares changed hands through the day, the most since the June 2022 crypto market crash, according to Yahoo data. The share price surged 18% to almost $21, the highest since bitcoin (BTC) hit $31,000 in mid-July.

The busy session followed a federal appeals court ruling that the U.S. Securities and Exchange Commission must review its rejection of Grayscale Investments' attempt to convert its flagship bitcoin-focused fund that manages over $17 billion worth of BTC into an exchange-traded fund (ETF). DCG, the parent company of Grayscale, also owns CoinDesk.

The company appealed the agency’s decision earlier this year, initiating a legal standoff. The conversion would allow redemptions and close the gap between the fund’s share price trading on secondary markets and the net value per share of the fund’s BTC holdings.

BTC jumped 7% to $28,000 on the news, while the discount on GBTC’s share price narrowed to as low as 17% during the day.

Profiting from GBTC discount to BTC price

The GBTC discount played a key role in last year’s crypto implosions. When crypto markets rallied in the past years, GBTC shares traded at a significant premium to net asset value. Notably, crypto hedge fund Three Arrows Capital made outsized bets to harvest the premium, then spectacularly blew up when the fund’s shares turned into a discount in 2022 due to cratering crypto prices. The discount widened to as much as 45% following the collapse of FTX, data by CryptoQuant shows.

Some investors, however, have been purchasing GBTC shares over the last three to six months betting on a narrowing discount in case of a favorable court decision, Doug Schwenk, CEO of crypto data provider Digital Asset Research, explained in an emailed note.

Now, some of them are taking profits as the discount has collapsed.

“We are seeing some market participants rotate out of GBTC positions on the news,” Schwenk said. “Of course, there are buyers taking on those positions, likely in hope of a continued collapse in the premium should the conversion be approved.”