It’s a polarizing world in institutional Bitcoin offerings this week as Grayscale’s CEO remains convinced demand will return.
Grayscale Met With The SEC, Tried To Convince Them To Turn The GBTC Into An ETF
Will GBTC get to become the first US-based spot bitcoin ETF? It doesn’t look that way. The euphoria from six months ago turned into Grayscale hinting that it might sue the SEC if its request is denied. Currently, the climate dictates that the answer will probably be negative, but the company is not giving up. According to CNBC, Grayscale “met privately with the Securities and Exchange Commission last week in an effort to persuade the regulator to approve the conversion of its flagship fund into an ETF.”
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The Grayscale Bitcoin Trust, also known as GBTC, “holds roughly 3.4% of the world’s bitcoin and is owned by more than 850,000 U.S. accounts, according to Grayscale.” For more than a year it has traded at around a 25% discount to BTC’s price. According to the firm, at the moment that the SEC approves the product’s transformation into an ETF, the discount will end and it will unlock “up to $8 billion in value for investors.”
Take into account that VanEck’s, BlockFi’s, and other recent applications for a spot bitcoin ETF have been rejected. And that Grayscale has been applying to get one since 2017. This time around, the SEC has until July 6th to approve or deny the GBTC application.
What Would Happen If The GBTC Turns Into An ETF
To answer this question, Grayscale made “a 24-page presentation” for the SEC. Some graphs from the document are in the CNBC report, although in low resolution. In general, the GBTC’s transformation into a spot bitcoin ETF “would open them up to ordinary investors in a familiar wrapper that trades like a stock.”
The main argument from Grayscale is that a bitcoin futures ETF already exists, and the “SEC is discriminating against issuers” by not letting any company create a spot bitcoin ETF. “Grayscale contended that a spot bitcoin ETF is “no riskier” than futures-based ETFs, because the two markets are both affected by the underlying price of bitcoin and track each other closely,” said CNBC.
Back in April Grayscale’s CEO, Michael Sonnenshein, felt more litigious when he said:
“If the SEC can’t look at two like issues, the futures ETF and the spot ETF, through the same lens, then it is, in fact, potentially grounds for an Administrative Procedure Act violation.”
The SEC visit and the threat of legal action have not been Grayscale’s only weapon. According to CNBC, to help transform the GBTC into an ETF, “the investment firm has helped coordinate a public letter-writing push, flooding the SEC with more than 3,000 letters in support of its application.”
GBTC price chart on FTX | Source: GBTC/USD on TradingView.com
How Would A Spot Bitcoin ETF Affect The Market?
Opinions vary. There are institutions that can’t invest in bitcoin as an asset, but could definitely put their money in an ETF. Some believe that the sudden influx of funds that these people would bring would send bitcoin’s price to the moon. Unlike a future ETF which only holds future contracts, a spot ETF would have to buy the bitcoin it’ll represent. So, the money would definitely enter the bitcoin ecosystem.
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On the other hand, Bitcoiners don’t see what they deem as “paper bitcoin” with good eyes. The financial instrument would represent bitcoin, but the ETF isn’t the asset per se. This puts investors at risk and brings forth certain vulnerabilities to the bitcoin network. The “paper bitcoin” could be considered inflation and something akin to fractional reserve banking is technically possible.
In any case, neither group has the finger on the trigger. The SEC and only the SEC does.
Featured Image by Aymanejed on Pixabay | Charts by TradingView
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“I think all options are on the table,” said the Grayscale CEO, adding that the company has put its “full resources” into converting its flagship Bitcoin trust.
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Grayscale Investments Set to File for Bitcoin Spot ETF as Competition Heats Up
Grayscale Investments, known for its Grayscale Bitcoin Trust (GBTC), is planning on filing an application to convert its flagship fund into a spot ETF early next week. Grayscale, which has been the dominant player in the digital asset space, is now looking to revamp its fund due to competition.
First Bitcoin Futures ETF Set to Trade Early Next Week, Adding More Competition for Grayscale
Last Friday, the Securities and Exchange Commission (SEC) approved the first ever Bitcoin futures ETF, which is set to trade on the New York Stock Exchange early next week. The move has been hailed as a “watershed moment” by many, where Bitcoin is finally solidifying its legitimacy as an asset class to Wall Street and mainstream investors.
Related Reading | Bitcoin ETF Receives Approval from SEC, Marking Historic Day for Crypto
Bitcoin (BTC/USD) dipped slightly following a rally to monthly highs of $63,000, before retracing back to $61,000. Source: Tradingview.com
The ETF, managed by investment firm ProShares, will feature a low management fee of 0.95%, compared to Grayscale’s 2%. Another benefit that the new ETF provides is the lack of redemption periods – something that has plagued GBTC’s investors since its very inception.
Why Grayscale’s Potential Spot Bitcoin ETF May Outperform Futures ETFs
The Bitcoin-futures ETF is a step in the right direction in making cryptocurrencies more accessible for the everyday investor; however, many crypto investors have argued that the ETF’s utilization of derivative contracts, which are traded on the Chicago Mercantile Exchange (CME), would prove to be far inferior compared to a spot ETF holding actual Bitcoin.
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Contango, which is a phenomenon that occurs when futures prices are above expected future spot price, means that investors will lose out potential gains due to the Bitcoin futures contracts expiring higher than the cryptocurrency’s spot price. Joe Orsini, director of research at Eagle Brook Advisors, explained the following disadvantages in his Twitter thread:
Futures-based #bitcoin ETFs? Buyer Beware.
A thread on contango, using USO ETF (a futures-based ETF on crude oil) to compare performance of Spot WTI Crude, 1st-month Crude Futures, and a futures-based ETF.
1/n pic.twitter.com/04Rv1m7NKB
— Joe Orsini, CFA (@JoeOrsini_) October 15, 2021
If approved, Grayscale’s spot Bitcoin ETF would be backed by actual Bitcoins, rather than derivatives that track the cryptocurrency’s price. Grayscale already has a significant portion of the world’s circulating Bitcoin supply.
Grayscale Bitcoin Trust (GBTC) assets under management rebounded $39B as Bitcoin (BTC) prices jumped past $60,000 following the news of SEC’s Bitcoin futures ETF approval. Source: Glassnode.com
Barry Silberts, the founder of Digital Currency Group and Grayscale Investments, took to Twitter to hint at upcoming changes for GBTC. He joked, “[f]riends don’t let friends buy and hold futures-based ETFs.” Though, there may be some truth behind the statement yet.
Featured image from UnSplash
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