In an unprecedented break in financial history, the U.S. Securities and Exchange Commission (SEC) has been directed by a federal court to reconsider its dismissal of Grayscale Investments’ bid to convert its Bitcoin Trust (GBTC), the world’s largest cryptocurrency fund, into a bitcoin exchange-traded fund (ETF).
A pivotal moment occurred in October 2021 following Grayscale’s application for conversion. Instead of the sought-after approval, the SEC rejected their bid, alluding to the application’s inadequacy in addressing prevention of market manipulation, among other concerns. Surprising many, Grayscale responded almost immediately, filing an appeal outlining their displeasure with the SEC’s decision, and requesting a review of their application.
Indeed, the fluctuating fortunes of Grayscale—part of the Digital Currency Group—mirror the tumultuous nature of the cryptocurrency world. The subpar performance of GBTC is a case in point. Despite its size, the fund traded at a regrettable discount, hitting a record 50% in December 2021 after the SEC restated its reasons for denying a conversion. Nevertheless, spurred on by other big industry players applying for bitcoin spot ETFs, GBTC has seen its discount reduce to just around 25%.
Prospects of converting a closed-end fund like GBTC into an ETF have merit. Analysts have long postulated that the switch could eliminate GBTC’s discount completely. This prediction is based on the fact that ETFs generally trade close to their fair value, essentially eradicating the discount currently impacting GBTC.
The conversion, while beneficial, does bring along changes. For instance, the newly created ETF will register under the Securities Act of 1933, making a positive shift from the previous private placement process. GBTC shares will also be elevated from over-the-counter to the NYSE Arca. New facets such as allowing for redemptions will also be permitted, a far cry from restrictions in the current system. The cherry on top? Reduced fees as promised by Grayscale, should their conversion materialize.
Alas, the realm of cryptocurrency is no stranger to regulatory hurdles, and the recent court order is a testament to this fact. While Grayscale’s about-face offers sparks of optimism, the truth remains – the road to widespread acceptance of bitcoin ETFs remains a winding one, plagued with unexpected twists and forks. At the heart of the matter, the insecurities of regulators continue to clash with the ambitions of crypto pioneers, creating a labyrinth of complexities in an already fluctuating financial landscape.
Source: Coindesk
