While bitcoin prices are slumping amid the risk-off market decline, one of the biggest questions in the world of exchange traded funds is when the Securities and Exchange Commission (SEC) will approve a spot bitcoin ETF.
The commission has consistently rejected such applications, but Grayscale - the issuer behind the Grayscale Bitcoin Trust (GBTC)- continues to make a compelling case regarding why the SEC should change its tune.
GBTC’s issuer reportedly met privately with the SEC last week, telling the commission that converting GBTC to an ETF from an index fund would likely open bitcoin to more investors while bringing significant value to current GBTC holders.
“Turning the Grayscale Bitcoin Trust into a NYSE-traded ETF would broaden access to bitcoin and enhance protections while unlocking up to $8 billion in value for investors, according to a 24-page presentation obtained by CNBC,” reports Hugh Son for CNBC.
The reason for that substantial unlocking of value is easy to understand. Index funds, like their actively managed mutual fund counterparts, are only priced once a day — at the close of U.S. markets. As a result, there’s a chance that some index funds will trade at discounts or premiums to net asset value (NAV). In the case of GBTC, it currently trades at a steep discount to spot bitcoin prices.
“That’s because the trust, known by its GBTC ticker, has traded at an average 25% discount to the price of its underlying asset since early 2021, a discount that should disappear upon conversion, the company said,” according to CNBC.
Broadly speaking, ETFs don’t trade at significant discounts or premiums to NAV because ETFs, like stocks, are priced throughout the trading day. It remains to be seen if the SEC is taking GBTC’s discount to spot bitcoin under advisement. Grayscale says there are more than 850,000 accounts, including professional investors, holding GBTC.
For its part, Grayscale is making clear its feelings on the matter of GBTC’s status as an aspiring ETF.
“The SEC is discriminating against issuers by approving bitcoin futures ETFs and denying bitcoin spot ETFs,” according to Grayscale.
The issuer contends that a spot bitcoin fund is no more risky than the current futures-based products that dominate the domestic bitcoin ETF market. GBTC controls about 3.4% of global bitcoin supply, according to CNBC.
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