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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.”

Related Reading | Grayscale Removes Bancor (BNT) And Universal Market Access (UMA) From Its DeFi Fund

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.

Related Reading | SEC, Ripple Agree To Extend Legal Battle Until 2023; XRP Bears The Brunt Of Case

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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Will The SEC Approve A Bitcoin Futures ETF In 2021? Here Are The Implications

Rumors are flying. The SEC could approve a Bitcoin Futures ETF before the year ends. It seems like the US Security And Exchange Commission will not give the go-ahead to the mythical Bitcoin ETF just yet… or ever, but a new option has a few companies salivating. What does this mean? And why a Bitcoin Futures ETF before one for the asset itself? That’s what we’re here to explore.

Related Reading | Skybridge Capital Applies For Cryptocurrency ETF And Accumulates $100 Million For ALGO Fund

But first, why is the SEC hesitant about approving the Bitcoin ETF? Investopedia responds:

“The reason is that bitcoin, the largest cryptocurrency in the world by market capitalization, remains largely unregulated. Additionally, the Securities and Exchange Commission (SEC) is hesitant to allow an ETF focused on the new and largely untested cryptocurrency market to make its way to the public.”

If that’s true, what makes us think that a Bitcoin Futures ETF is not only possible, but imminent? Well, last month The SEC Chairman Gary Gensler told the Aspen Security Forum:

“I anticipate that there will be filings with regard to exchange-traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with the other federal securities laws, the ’40 Act provides significant investor protections.

Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures.”

🤯 pic.twitter.com/XUlSV31jEw

— Eduardo Prospero (@edprospero23) September 23, 2021

Is A Bitcoin Futures ETF What US Investors Want?

Since Gary Gensler sent such a clear signal, the financial world responded in unison. 

“At least four asset managers have filed for ETFs that invest in bitcoin futures after Securities and Exchange Commission chair Gary Gensler earlier this month indicated that he could approve such funds. But investors may not want them in lieu of physically backed bitcoin ETFs, analysts have said.”

According to Investopedia, “A bitcoin ETF mimics the price of the digital currency, allowing investors to buy into the ETF without trading bitcoin itself.” However, who’s interested in ETFs when bitcoin, the asset, is widely available? Some investors or groups simply can’t invest in bitcoin because their own internal rules won’t allow them to. They can’t purchase bitcoin through a brokerage account. No financial institution backs it, so no one protects them. And, of course, there’s the feared volatility.

Bloomberg explains how Bitcoin fixes this:

“A Bitcoin ETF could help get around those restrictions since the format is more widely accepted. “There are all sorts of custody and regulatory hurdles for big financial institutions to jump through,” said Ross Mayfield, investment strategy analyst at Robert W. Baird & Co. “If it were offered in an ETF, it clears a lot of that up for financial institutions.”

However, it appears that the SEC won’t approve one any time soon. Why would they approve a Bitcoin Futures ETF instead? Bloomberg continues:

“For the SEC’s purposes, Bitcoin futures also offer an additional level of security because they are governed by the Chicago Mercantile Exchange and require investors to put down cash on margin to trade, as a form of collateral.”

BTC price chart 09/27/2021 on Coinbase | Source: BTC/USD on TradingView.com
Experts And Important Players Disagree

While some companies can’t wait for the Bitcoin Futures ETF to be available, others are less enthusiastic. One of those is Michael Sonnenshein, CEO of Grayscale Investments. His company is one of the many that applied for a Bitcoin ETF and are still waiting for approval. In a recent CNBC interview, he said:

“It would be shortsighted of the SEC to allow a futures-based product into the market before a spot product,” Sonnenshein told CNBC’s “Squawk Box” on Tuesday. “They really should be allowing both products into the market at the same time and let investors choose which way they want.” 

Related Reading | Did The SEC’s Gary Gensler Threaten Crypto And DeFi In The WaPo Interview?

Of course, he’s heavily invested in this outcome. His company’s Grayscale Bitcoin Trust is incredibly successful, but if they manage to turn it into an ETF, it might go parabolic. However, he’s not the only one that thinks that way. In the Bloomberg article, another expert elaborated on the Bitcoin Futures ETF ‘s limitations:

“With futures-based products, you introduced additional cost, more complexity, you have futures contracts that have to be rolled,” said the ETF store’s Geraci. “It’s just a sub-optimal option for investors.”

In any case, the Bitcoin Futures ETF approval is just speculation. Gary Gensler said he looked forward to reading his staff’s review of the fillings, which is not a guarantee by any stretch of the imagination.

Featured Image by Markus Winkler from Pixabay – Charts by TradingView