05 Jul 2022

Spot-based bitcoin ETFs rejected, again

Unsurprisingly, both Bitwise’s and Grayscale got their spot-based bitcoin ETFs rejected last week. However, they are not giving up. Grayscale has sued SEC after the rejection, hoping to convert GBTC to an ETF through court
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Source: Skew (July 1)
We saw another round of rejected spot bitcoin ETFs last week. It was no surprise that the SEC rejected both Bitwise’s and Grayscale’s applications. Both firms filed for spot-based bitcoin ETF in October last year, but the decisions have been delayed several times as the SEC requested additional information and comment from the public.Grayscale wants to convert its bitcoin trust (GBTC) with $12.35 billion in AUM into an ETF. This has drawn increased attention to the GBTC discount to the trust’s net asset value (NAV), which is currently more than 30%. If the ETF is approved, the discount will effectively disappear, which has made it a hot discussion topic lately. The SEC pointed toward market manipulations in the bitcoin spot markets, the role of Tether, and the lack of surveillance and regulated exchanges as reasons for rejecting Grayscale’s application.Interestingly, Grayscale immediately sued the SEC after the rejection, and according to the CEO of Grayscale, Michael Sonnenshein, they think that “the SEC is acting arbitrary and capricious by continuing to approve bitcoin futures-based ETFs while continuing to deny spot bitcoin ETFs”. This refers to the fact that the SEC has rejected over a dozen spot-based bitcoin ETF applications but has approved four futures-based bitcoin ETFs in less than a year.Grayscale stays determined to convert GBTC into a spot-based ETF, but investors should understand that the latest petition could take up to 18 months to resolve. However, Sonnenshein is hoping for a decision within a year. It’s important to keep this in mind if you’re buying the heavily discounted GBTC in a bet on the ETF approval. However, as mentioned two weeks ago, given Grayscale’s 2% annual management fee, the fund would need to remain close-ended and fail to convert to an ETF in the next 20 years to justify its current discount. Perhaps 18 months of waiting isn’t that bad after all.
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