In a significant move, a federal appeals court has instructed the SEC to reconsider its decision to dismiss the trust issuer's proposal to transform the Grayscale Bitcoin Trust into an exchange-traded fund (ETF). This development might pave the way for the first-ever spot bitcoin ETF in the United States.
The Grayscale Bitcoin Trust (GBTC), managed by Grayscale Investments, which oversees the world's largest cryptocurrency fund, initially sought approval to convert its closed-end fund into an ETF back in October 2021. The SEC's rejection followed, citing concerns over issues like preventing market manipulation and other related matters.
Responding swiftly, Grayscale lodged an appeal against the SEC's decision, immediately seeking a review from the U.S. Court of Appeals for the District of Columbia Circuit. It's worth noting that Grayscale operates under the umbrella of Digital Currency Group.
This court ruling comes amid a flurry of applications from major institutions aiming to establish spot bitcoin ETFs. Notably, BlackRock, a prominent asset manager, submitted its application in June, generating substantial optimism about the potential approval of a spot bitcoin ETF. Other players like Fidelity, a significant mutual-fund manager, have also thrown their hats into the ring, seeking approval for bitcoin ETFs. Since 2021, seven bitcoin futures ETFs have been actively traded.
Interestingly, the Grayscale product has been trading at a discount compared to its underlying asset since February 2021. This discount reached an unprecedented 50% in December, triggered by the SEC's reiterated reasons for denying the conversion of the trust into an ETF. However, the situation began to shift as notable entities applied for bitcoin spot ETFs, causing GBTC's discount to narrow to around 25%, marking the smallest discount since early 2022.
Industry experts have long predicted that transitioning from a closed-end fund to an ETF could effectively eliminate GBTC's discount. This is attributed to the inherent nature of ETFs, which generally trade close to their intrinsic value.
Notably, the fund's structure will remain largely unchanged, with a few key adjustments. The shares will now be officially registered with the SEC under the Securities Act of 1933. Before the conversion, GBTC shares were made available through a private placement process, primarily accessible to accredited investors and subject to a six-month holding period.
Another notable modification involves the shares being migrated from over-the-counter markets to the NYSE Arca. Additionally, the revamped structure will permit redemptions, a feature previously unavailable. Grayscale has also expressed its intention to reduce fees if GBTC undergoes the transformation into an ETF. The fund, which previously imposed a 2% annual fee, is poised for changes that could potentially benefit investors.
