Grayscale, the largest crypto asset manager, has amended its filing to convert its Bitcoin trust into a spot ETF, opting for a cash creation model. The move comes as its parent company’s CEO steps down amid an SEC probe.
Grayscale has made two significant moves in its quest to launch a spot Bitcoin ETF in the U.S. market. On the same day its parent company’s CEO, Barry Silbert, announced his resignation from Grayscale’s board of directors, the firm also filed an amended S-3 form with the U.S. Securities and Exchange Commission (SEC), changing its proposed creation mechanism from in-kind to cash.
The leadership change and the filing update have sparked speculation among crypto market observers that Grayscale is trying to increase its chances of getting the SEC’s approval for its Bitcoin ETF, which would be the first of its kind in the U.S. Grayscale currently operates the Grayscale Bitcoin Trust (GBTC), the largest Bitcoin fund in the world, with over $17 billion in assets under management.
Silbert, the founder and CEO of Digital Currency Group (DCG), the parent company of Grayscale, said he was stepping down from Grayscale’s board to focus on DCG’s other businesses and initiatives. However, some analysts believe that his departure was influenced by the SEC’s ongoing investigation into him and DCG, which was revealed in an 8-K filing to the SEC on Dec. 26.
The filing also announced that Mark Shifke, the chief financial officer of DCG, would succeed Silbert as the chairman of Grayscale’s board. Shifke has over 30 years of experience in finance and accounting and has previously served as the CFO of several public and private companies.
The amended S-3 filing also revealed that Grayscale had changed its proposed creation mechanism for its Bitcoin ETF from in-kind to cash. This means that instead of accepting Bitcoin from authorized participants (APs) in exchange for ETF shares, Grayscale would accept cash and use it to buy Bitcoin on the open market.
This change is significant because it aligns with the SEC’s preference for cash creation, which the regulator believes would reduce the potential for market manipulation and fraud. The SEC has previously expressed concerns about the reliability and transparency of the Bitcoin market and has rejected several Bitcoin ETF proposals that used in-kind creations.
However, not everyone agrees that cash creation is better for investors. Scott Johnsson, the general partner at VB Capital, a crypto venture capital firm, argued that cash creations could expose investors to more risks, such as slippage, tracking errors, and counterparty risks. He also questioned the SEC’s stance on investor protection, saying that the regulator should allow the market to decide which creation mechanism is more efficient and beneficial.
Grayscale’s amended filing is the latest step in the firm’s long journey to convert its GBTC into a spot Bitcoin ETF. The firm filed its application in April 2021, but the SEC rejected it in October 2021, citing the lack of a national securities exchange listing for GBTC. However, in November 2021, a U.S. appellate court ordered the SEC to review its decision, giving Grayscale another chance to pursue its ETF bid.
Grayscale is not the only firm seeking the SEC’s approval for a spot Bitcoin ETF. Several other asset managers, including BlackRock, Fidelity, and Franklin Templeton, have also filed their applications, hoping to tap into the growing demand for Bitcoin exposure among investors. However, the SEC has not approved any spot Bitcoin ETFs yet, despite approving several Bitcoin futures ETFs in October 2021.
The SEC’s chairman, Gary Gensler, has indicated that he is more open to Bitcoin futures ETFs than spot ETFs, as he believes the former are subject to more regulatory oversight and investor protection. However, he has also said he will consider spot ETFs if they meet the SEC’s standards and expectations.
The crypto industry and the investors are eagerly waiting for the SEC’s decision on the spot Bitcoin ETFs, as they believe that such products would boost the adoption, liquidity, and legitimacy of Bitcoin. Grayscale’s amended filing and leadership change could be seen as positive signs that the firm is doing its best to address the SEC’s concerns and meet its requirements. However, the ultimate outcome of the Bitcoin ETF saga remains uncertain and unpredictable.
