Here’s Why Grayscale Needs Spot Bitcoin ETF Approval
- Grayscale hired the services of top legal counsels to help fight the SEC’s decision.
- Experts believe the SEC would be more open to the crypto world once it regulates the industry.
Grayscale, one of the biggest digital asset managers in the world, recently filed a lawsuit against the US Securities and Exchange Commission (SEC) moments after the commission on Wednesday denied its request to turn its famous bitcoin trust into an exchange-traded fund (ETF). Grayscale has long been pushing for this move and was greatly disappointed by the rejection.
The firm which was set up in 2013 is a part of Barry Silbert’s Digital Currency Group. The business offers access to digital assets, investment vehicles, and market data. Since its debut, Grayscale has submitted numerous requests for Bitcoin ETFs.
Grayscale wrote about its application journey late last year,
Grayscale first submitted an application for a Bitcoin ETF in 2016 and spent the better part of 2017 in conversations with the SEC. Ultimately, we withdrew our application because we believed the regulatory environment for digital assets had not advanced to the point where such a product could successfully be brought to market.
The SEC appears to believe that the crypto industry is not ready for such approval. According to the SEC’s decision, the application for the Grayscale spot ETF did not go far enough to safeguard investors from fraudulent and deceptive activities and practices.
An ETF is also known as an exchange-traded fund because like stocks, it is traded on an exchange. Using an ETF, investors can purchase shares on the open market without actually holding the assets, in this case, Bitcoin. Last year, the SEC approved a Bitcoin futures ETF, which allows derivative contracts that speculate on the future price of Bitcoin. But, it has since refused to grant permission to a Bitcoin spot ETF, which would be linked to the current price of the cryptocurrency.
The Grayscale Bitcoin Trust is now managing $12.9 billion, according to the platform. Shares in the Grayscale Bitcoin Trust (GBTC) have reportedly been traded at a price less than the net value of the Bitcoin held by the asset manager. Converting the trust into a spot Bitcoin ETF will significantly improve Grayscale. It will enable the firm to demand cheaper fees and improve the movement of money in and out of the fund.
What Does the Future Hold?
The SEC noted that its rejection of Grayscale’s request is not based on an evaluation of the usefulness or worth of bitcoin as an investment. It pointed out possible loopholes in the system, casting a doubt on the readiness of the industry. Prior to this ruling, many crypto experts believed the SEC’s stance would have softened and permission would be granted. But such hopes seem dashed by the latest ruling.
There are fresh questions about when the SEC would give its approval but many analysts believe such changes might happen in mid-2023. According to Bloomberg Intelligence analysts James Seyffart and Eric Balchunas, Spot bitcoin ETFs could receive some approvals by mid-2023 given a potential SEC regulation change that redefines exchanges.
The intelligence analysts wrote,
Expanding the definition of an exchange could eliminate the agency’s primary objection to the products by bringing cryptocurrency platforms under the SEC’s regulatory framework. Once crypto exchanges are compliant, the SEC’s primary reason for denying spot Bitcoin ETFs would no longer be valid, likely clearing the way for approval.
New note out on why we think spot bitcoin ETFs will get approved in early Summer 2023. The SEC is proposing to expand the definition of "exchange" which would bring crypto platforms under SEC reg. After that (which could take a year) look for ETFs to get green light via @JSeyff pic.twitter.com/TtFgFXrJ8h
— Eric Balchunas (@EricBalchunas) March 24, 2022
Most experts believe that the SEC would be more welcoming to the crypto world once it comes under its regulation. However, not many crypto enthusiasts are open to the idea of regulation.
Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.
