In a letter to the US Securities and Exchange Commission (SEC), Grayscale claims the organisation has “no grounds” for rejecting its proposal to convert the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF). However, given the firm’s current 2% management fee on its monopolistic GBTC offering, it’s questionable whether the largest Bitcoin trust on the market is keen on the approval.
Grayscale outlines three points for the SEC
The letter was issued following a ruling by a federal judge who found that the SEC must revisit its dubious decision regarding Grayscale Investments’ application to convert its GBTC fund into an ETF.
On Tuesday, Grayscale’s legal team said in a letter:
“After the Commission has had the opportunity to fully analyse the court’s opinion in light of the record, including the reasons for rejection set forth … we believe the Commission should conclude that there are no grounds for treating the Trust differently from ETPs that invest in bitcoin futures contracts.”
The team highlighted three key points to consider in its next steps.
“First, each day that passes without listing the Trust’s shares on NYSE Arca is another day when the Trust’s existing investors bear unjustified harm in the form of shares that trade at a substantial discount to net asset value,” read the letter.
“Second, U.S. investors seeking access to regulated bitcoin investment products should not be forced into less efficient and more complicated product structures simply because these are the only product types yet to gain Commission approval,” it added.
“Third, in the past few weeks the Commission has received Rule 19b-4 filings relating to several proposed spot bitcoin ETPs, each of which seeks to compete with the Trust,” the letter stated.
“And so we hope you will agree that the best use of resources now is for the Commission to issue an order approving NYSE Arca’s Rule 19b-4 filing and authorize the staff to work with Grayscale and NYSE Arca to finalize the prompt listing of the Trust’s shares. We believe the Trust’s nearly one million investors deserve this fair playing field as quickly as possible,” the letter concluded.
Public posturing on all sides
The SEC has expressed supposed concerns regarding the introduction of a spot ETF, all the while approving riskier Futures-based ETFs; a simultaneously illogical and discriminatory stance, per Grayscale. Nowadays, the SEC’s alleged concerns about market manipulation and consumer protection do not appears to stand up to scrutiny in both the eyes of the market at large, as well as federal judges. The situation suggests that the SEC is more keen on protecting financial intermediaries than consumers.
Intermediaries include the ETF provider, clearing house, futures broker, administrator, auditor, law firms, the CME and hedge funds that take a slice of a the pie with futures-based Bitcoin ETFs. On top of that, futures ETFs can only mimic exposure to bitcoin of up to 85% of their net asset value (NAV). The rest must be placed in “safer” instruments such as Treasury bills or bonds and the investor has no say in the matter.
As for investors, there are four main reasons to avoid a futures ETF.
Meanwhile, Grayscale earns a 2% fee management on its underwater 600,000 Bitcoin holdings. When a Spot Bitcoin exchange traded fund gets approved, the fee would fall from 2% to 0.50%. Beyond that, the trust would likely have to contend with a torrent of BTC outflows. An ETF approval also means that other asset managers, namely BlackRock, Fidelity, Bitwise, Invesco, WisdomTree, VanEck, Valkyrie, Global X, 21Shares and Ark Invest, would also get approval on pending submissions; therefore Grayscale’s management fee would be arbitraged to zero over time.
In other words, both the SEC and Grayscale are posturing to care about consumers in their own way, all the while maintaining the status quo for as long as possible in order to milk their respective cash cows for as long as possible. The quasi-hysterical situation raises questions as to whether the entire public fight is a ruse orchestrated by both parties.
Certainly, both have every reason to delay the inevitable, regardless of what’s admitted publicly.
As it stands, Europe might beat the United States to a Spot Bitcoin ETF, with Wealth manager Jacobi Asset Management being “on track‘ to launch a Bitcoin ETF in Europe by year end.
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