Grayscale Filing Bitcoin ETF Application to ‘Force the SEC’s Hand’: Report

UPDATE: On Tuesday, Grayscale indeed filed to convert its flagship Grayscale Bitcoin Trust (GBTC) into a Bitcoin spot ETF. The below story is from Monday.

Grayscale is reportedly moving ahead with plans to convert its Grayscale Bitcoin Trust (GBTC) to a Bitcoin exchange-traded fund backed by physical Bitcoin. A corresponding filing with the U.S. Securities and Exchange Commission (SEC) may be submitted early this week, according to a CNBC report.

As of October 15, Grayscale held $52.6 billion in assets under management, with as much as $38.6 billion, or 73% of all funds, allocated to GBTC. However, the trust comes with a number of disadvantages, such as a six-month lock-up period on the investments and a 2% annual management fee.

The fund has also been stuck trading at a discount to Bitcoin since February this year. At press time, the GBTC discount is 15.15%.

Per CNBC, Grayscale decided to move for a spot Bitcoin ETF immediately after the SEC approved ProShares Trust’s futures-based ETF last Friday.

According to the anonymous sources familiar with the matter, the investment firm’s move could be an attempt “to force the SEC’s hand.”

“If they are comfortable with Bitcoin futures, regulators should also be comfortable with the underlying market, the thinking goes,” the source told CNBC.

The SEC green lighting the ProShares futures ETF is largely considered as the primary reason behind Bitcoin’s latest rally above $62,000.

Still, some investors have misgivings about the Bitcoin futures product.

Unlike futures Bitcoin ETFs, that are tied to the CME-traded derivatives contracts, a “proper” Bitcoin ETF is backed by the actual underlying asset. Fees on a futures-based Bitcoin ETF are also reportedly much higher. Matt Hougan, the CIO of Bitwise, said that these products could come with “~6-12%” in fees and total costs.

3/

C. Tail risk: Remember $USO in 2020? Position limits, liquidity, etc — things can break.

In sum: A futures-based Bitcoin ETF comes with ~6-12% all-in costs, ~15% dilution, and tail risk.

Useful for certain investors, but not ideal.

A direct BTC ETF avoids all that —

— Matt Hougan (@Matt_Hougan) October 14, 2021

Currently, there are over a dozen Bitcoin ETF applications awaiting a decision from the SEC. The last to join this list was Bitwise Asset Management, which filed its application last week.

Barry Silbert, the CEO of Digital Currency Group, Grayscale’s parent company, is among those criticizing futures ETFs as well.

“Friends don't let friends buy and hold futures-based ETFs,” he tweeted on Sunday.

When asked by Preston Pysh, who runs the Investor’s Podcast Network, when exactly Grayscale plans to convert GBTC into a spot Bitcoin ETF, Silbert replied with just two words: “Stay tuned.”

stay tuned

— Barry Silbert (@BarrySilbert) October 17, 2021

GBTC’s possible conversion into a Bitcoin ETF should not come as a surprise though.

Grayscale first announced such intentions in April 2021, noting that the firm is “100% committed to converting GBTC into an ETF," and that “the timing will be driven by the regulatory environment.”