Long Wait for Bitcoin ETF Approval
Since May 2014, U.S. investors have been eagerly anticipating the approval of a Bitcoin (BTC) exchange-traded fund (ETF), which began when the Winklevoss Bitcoin Trust filed an amendment request with the U.S. Securities and Exchange Commission (SEC). Unfortunately, the SEC has rejected every application since, with the latest denial handed to WisdomTree on October 11, 2022. The SEC cited concerns that the offering lacked the ability to detect, investigate, and deter fraud and market manipulation.
The Case for a Spot Bitcoin ETF
Since 2013, Bitcoin investment trust vehicles have been limited to accredited investors, while a spot-based BTC ETF would democratize access, allowing retail investors and a wider variety of mutual funds to partake. The reluctance of U.S. regulators to approve a Bitcoin spot ETF stands in stark contrast to the laundry list of spot ETFs available for assets like bonds, gold, real estate, and silver.
Grayscale Bitcoin Trust and Market Discrepancies
Grayscale Bitcoin Trust (GBTC), currently valued at $12.3 billion, is trading at a record-high discount of 36.7% relative to its Bitcoin holdings. Unlike ETFs, trust funds like GBTC do not have redemption or conversion rights. Instead, they sit outside the SEC’s purview, governed by the U.S. Office of the Comptroller of the Currency. This structure creates inefficiencies resulting in significant price discrepancies compared to the underlying Bitcoin holdings.
Understanding ETFs
An ETF is a type of security designed to hold diversified underlying investments, including commodities, stocks, or bonds. Similar to mutual funds, ETFs are pooled and actively managed but allow for easier market transactions. For example, the SPY ETF, which tracks the S&P 500 index, showcases how ETFs can facilitate investor access to various asset classes.
Comparison with Other Investment Funds
Unlike GBTC, which functions as a closed-end fund, ETFs enable market makers to create and redeem shares, thus minimizing significant premiums or discounts. For context, Purpose Bitcoin ETF (BTCC.U) held a net asset value per share of $3.59 on October 13 and closed at $3.60, showcasing minimal discrepancies compared to the underlying assets.
Grayscale’s Legal Battle Against the SEC
Grayscale has taken a firm stance against the SEC, initiating a lawsuit in June 2022 to convert GBTC into a spot-based Bitcoin ETF. This legal challenge, based on claims of “arbitrary” treatment by the SEC, is rooted in Grayscale’s assertion that similar investment vehicles were treated inconsistently. The company has been awaiting the regulator’s final decision since filing its application in October 2021.
Conclusion: The Future of Bitcoin ETFs
While eight and a half years have passed since the initial request for a Bitcoin spot ETF was made, the path to approval remains murky. Grayscale continues to charge a 2% yearly administration fee, casting doubts on the sustainability of GBTC amidst ongoing SEC rejections. As it stands, the investment trust structure proves to be a less favorable option compared to an ETF, leaving investors awaiting potential changes and optimizations for GBTC holders.
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