Grayscale’s New Trust and the Battle for US Spot Bitcoin ETF Approval

Intricate cyber cityscape, Grayscale Investments building, futuristic stock exchange, glowing Bitcoin and Ethereum symbols, SEC building, soft light, baroque painting style, tension between innovation and regulation, air of anticipation, a touch of defiance.

Grayscale Investments, the world’s largest digital asset manager, has announced the formation of a new trust, the Grayscale Funds Trust, in a bid to launch a spot Bitcoin Exchange Traded Fund (ETF) in the US. The company claims that the new Delaware statutory trust structure will enable it to independently manage its 1940 Act products and further expand its ETF business.

Grayscale CEO Michael Sonnenshein stated that the creation of Grayscale Funds Trust highlights their devotion to scaling Grayscale’s business responsibly, laying the groundwork for the company to continue creating and managing regulated, forward-thinking products. In addition, Grayscale has filed a new registration statement with the US Securities and Exchange Commission (SEC) for a new Ethereum Futures ETF, a Grayscale Global Bitcoin Composite ETF, and a Grayscale Privacy ETF. David LaValle, Grayscale Global Head of ETFs, emphasized the firm’s commitment to offering investors innovative ways to access the digital economy using familiar, trusted, and regulated investment vehicles.

However, the SEC has repeatedly declined to approve spot Bitcoin ETF products in the US, largely due to concerns regarding the largely unregulated cryptocurrency exchanges that facilitate spot Bitcoin trading. The regulatory body has argued that spot ETFs are vulnerable to fraud and market manipulation. In January, it rejected a proposal by Grayscale to convert its Bitcoin Trust (GBTC) into an ETF.

In contrast, the SEC has approved Bitcoin Futures ETFs, as these Bitcoin futures are traded on regulated US exchanges, such as the CME. Grayscale is currently engaged in legal disputes with the SEC, challenging what they have previously called the agency’s “illogical” and “fundamentally unreasonable” arguments against approving a spot Bitcoin ETF.

Grayscale contends that successful price manipulation in the spot Bitcoin market would also impact the price of Bitcoin futures and therefore the value of Bitcoin futures ETPs’ holdings. This underlines the need for the creation of a regulated spot Bitcoin ETF.

Eager to convert its Bitcoin Trust into an ETF, Grayscale may be hoping for a reversal of the significant discount at which it is trading compared to the actual Bitcoin price. As of last Tuesday, the GBTC discount was approximately 37%, according to YCharts. The ongoing legal battle, growing interest in regulated investment vehicles, and the creation of the Grayscale Funds Trust reflect the tension between market innovation and regulatory scrutiny in the rapidly evolving world of digital assets.

Source: Cryptonews

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