The conversion of the Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin ETF is a point of contention between Grayscale Investments and the United States Securities and Exchange Commission (SEC). Grayscale CEO Michael Sonnenshein believes investors would greatly benefit from this conversion. However, the SEC has denied the company’s application since June 2022 due to fears of manipulation and fraud. The case continues before the judges, and some hope begins to dawn.
The Benefits of Converting GBTC to Bitcoin ETF
Launched in September 2013, the GBTC allows investors to gain exposure to bitcoins without having to buy them. Money from institutional investors is pooled and spent on bitcoins. Thereafter, Grayscale holds and controls the funds in BTC.
However, following the complicated situation of Genesis Trading, the price of GBTC became decorrelated from that of BTC. In fact, Genesis Trading, which filed for bankruptcy, was part of the same group as Grayscale: Digital Currency Group.
As a result, institutional clients significantly reduced their exposure by selling their GBTCs. Currently, GBTC is trading at a discount to its net asset value. This means that investors buy the fund at a price lower than its true value.
In a recent interview with the podcast ” What Bitcoin Did“, Sonnenshein estimates that there would be a few billion dollars of capital that would immediately return to the pockets of investors if the GBTC converted into a Bitcoin spot ETF.
Logically, if the GBTC converts into a spot Bitcoin ETF, there would be a “ arbitration mechanism ” integrated. This would eliminate the premium/discount and the fund would reach its net asset value (NAV).
Sonnenshein also claims that converting to a spot Bitcoin ETF would give investors better regulatory protection.
The SEC had previously approved Bitcoin Futures ETFs, prompting Grayscale to request a conversion of its GBTC to Bitcoin spot ETFs.
Sonnenshein argues that the SEC “violated the Administrative Procedure Act” by refusing to approve GBTC as a bitcoin Spot ETF.
In fact, the SEC rejected Grayscale’s request to convert GBTC to a Bitcoin spot ETF in June 2022. It cited concerns related to manipulation and fraud. The SEC published a 73-page memorandum explaining the reasons for its refusal. According to the SEC, Grayscale’s proposal did not sufficiently protect investors.
Currently, the battle between Grayscale and the SEC continues in court, and Grayscale’s CEO hopes to have a favorable response by fall 2023.
If the Sec approves this conversion, it could have a significant impact on Grayscale investors, who have invested more than $12 billion in GBTC.
With over one million investor accounts worldwide, Grayscale is committed to achieving this conversion and ensuring that its investors receive fair value for their investment. The battle continues, and the outcome of this dispute will surely have significant implications for the cryptocurrency market and the future of Bitcoin ETFs.
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