Grayscale, a famous cryptocurrency asset management company, recently tweeted that its application was rejected to convert GBTC (Grayscale Bitcoin Trust) to a spot Bitcoin ETF.
Today, the SEC denied our application to convert $GBTC to a spot #Bitcoin ETF. 🧵
— Grayscale (@Grayscale) June 30, 2022
Immediately after the SEC denied Grayscale Investments’ proposal, Grayscale Investments filed a lawsuit against the SEC (ETF). Essentially, the business will contend that the SEC must allow products that are similar to existing products, such as bitcoin futures ETFs, to be traded.
We’ve filed a lawsuit against the SEC. $GBTC
— Sonnenshein (@Sonnenshein) June 30, 2022
Essentially, Grayscale is asking the U.S. Court of Appeals for the District of Columbia Circuit to reexamine SEC’s ruling. Only a small number of bitcoin futures ETFs have been allowed for trading so far.
Spot bitcoin ETFs trade is based on the price of bitcoin itself, whereas futures-based ETFs trade depending on the price of CME’s bitcoin futures product.
While proponents of a Bitcoin ETF say that futures markets are still dependent on the actual spot price of bitcoin, the SEC points out that CME’s futures market is controlled by a fellow federal body, the Commodity Futures Trading Commission.
The rationale for converting GBTC to ETF
When Grayscale submitted its proposal in October, it hinted that it might sue if the application was denied. Grayscale’s long-standing problem with the trust’s steep discount on its underlying holdings will be resolved by converting GBTC into an ETF.
GBTC shares, unlike ETFs, cannot be produced or redeemed in response to fluctuating demand. To put it another way, GBTC has virtually become a closed-end fund, with its stock price trading 28% below its net asset value.
According to Grayscale, the creation of an ETF may release up to $8 billion in value for investors at a meeting with US authorities held back in May.
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