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Since May 2014, when the Winklevoss Bitcoin Trust submitted an amendment request to the United States Securities and Exchange Commission, American investors have been waiting for the SEC to approve the creation of a Bitcoin exchange-traded fund (ETF) (SEC).
Every applicant has been turned down by the SEC over the years, and on October 11, WisdomTree’s application for a spot Bitcoin ETF received the most recent rejection. In its analysis, the SEC came to the conclusion that the offer lacked the capacity “to gather information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of applicable federal securities laws and rules.”
Since 2013, there have been Bitcoin investment trust vehicles, although they are only available to accredited investors.
By introducing a spot-based BTC ETF, the market would become accessible to regular investors and a wider range of mutual funds.
Regulators in the United States are currently hesitant to introduce what many consider to be a more equitable and transparent product for Bitcoin. Contrastingly, the same product has long been offered for bonds, world currencies, gold, Chinese equities, real estate, oil, and silver, but BTC spot ETFs continue to be refused.
Despite trading at a record-breaking 36.7% discount to its Bitcoin holdings, Grayscale Bitcoin Trust (GBTC), a $12.3 billion investment fund, may not be a “buy the dip” type of discount. After the Toronto Stock Exchange introduced the Purpose Bitcoin ETF in February 2021, the gap developed.
An exchange-traded fund
An ETF is a type of securities that has diversified underlying investments, such as equities, bonds, and commodities. Due to the fact that it is pooled and managed by its issuer, the ETF may resemble a mutual fund.
The most well-known example of this instrument is SPY, the ETF that tracks the S&P 500 index. The mutual fund now has $328 billion in assets under management and is managed by State Street.
There are other more unusual structures available, such as ProShares UltraShort Bloomberg Crude Oil (SCO). Investors are essentially betting on a decline in oil prices with this fund because it employs derivatives and tries to deliver two times the daily short leverage on oil prices.
In contrast to holding futures contracts and leveraged positions, purchasing an ETF offers the investor immediate ownership of its contents, resulting in various taxing events.
Trust funds like GBTC do not provide conversion or redemption rights.
Investment trust funds are actually governed by American law and are outside the SEC’s purview. Office of the Currency Comptroller
Despite being set up as a firm, at least in terms of regulation, Grayscale’s GBTC remains the undisputed market leader in cryptocurrencies. The investment trust is a closed-end fund, therefore there are only a certain amount of shares accessible.
Grayscale is battling the SEC, but outcomes may not be seen for years.
Asset management Grayscale filed a lawsuit against the SEC in June 2022, seeking to have GBTC converted into a spot-based Bitcoin ETF, but the firm had been waiting for the regulator’s final judgment since submitting its application in October 2021.
The asset management then sought a legal challenge based on the SEC’s alleged breach of the Administrative Procedure Act and Securities Exchange Act, claiming that the SEC rejection was “arbitrary” in that it “failed to apply uniform treatment to similar investment vehicles.”
It should be remembered that it has been eight and a half years since the initial application for a Bitcoin spot ETF register was made. The 36.7% reduction may be reasonable considering that GBTC now charges a set 2% annual administration fee and the SEC continues to deny petitions and appeals from every fund manager.
In summary, the investment trust product is significantly less ideal than an ETF, and Grayscale hasn’t done much to lessen the effect on GBTC holders thus far.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
