The Securities and Exchange Commission (SEC) has been ordered by a federal appeals court to vacate its refusal of the trust provider’s bid to change the Grayscale Bitcoin into an exchange-traded fund (ETF).
The United States might be about to acquire its initial spot bitcoin EFT following the federal court that the United States SEC should evaluate its rejection of Grayscale Investment’s effort to change the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund.
In October 2021, Grayscale Investments, which manages the biggest cryptocurrency fund in the world, initially applied for its Grayscale Bitcoin Trust closed-end fund to be changed into an ETF. The SEC rejected this application since it failed to answer the queries concerning preventing market manipulation and other concerns.
Court Ruling Set to Erode Discount Existing in GBTC
Afterward, Grayscale filed an appeal against the agency barely an hour following the application’s rejection. In the filing, the firm requested the United States Court of Appeals for the District of Columbia Circuit to evaluate the agency’s stance. Grayscale is Digital Currency Group’s unit, CoinDesk’s parent.
The decision by the court follows a spell of big institutions filing applications for spot bitcoin ETF. BlackRock, an asset manager, filed its application in June, creating confidence in approving a spot bitcoin ETF. BlackRock applications triggered interest for Bitcoin ETFs from other asset managers including Fidelity, Wisdom Tree, Hashdex and BitWise among others.
Since February 2021, the Grayscale product has traded at a discount to the underlying asset. In December, this discount extended to a record 50 percent following the Securities and Exchange Commission’s reiteration of the decisions behind denying the application by Grayscale to change the trust into an ETF.
Nevertheless, after big names filed for bitcoin spot ETFs, GBTC’s discounts narrowed to nearly 25 percent, representing the smallest discount since early 2022.
Grayscale GBTC Set for Fundamental Changes
According to market analysts, shifting from a closed-end fund to an ETF may remove GBTC’s discount altogether. This is because of the nature of the ETFs that generally trade near their fair value. The fund’s structure will remain unchanged except for a few things.
In this case, the shares will be registered with the SEC under the Securities Act of 1933. Before the conversation, GBTC shares’ provision was made via a private placement process. This means that only accredited investors could access them earlier and were also subject to a holding period of six months.
Another change to the structure entails uplifting the shares from the over-the-counter markets to the New York Stock Exchange (NYSE) Arca. Further, this new structure will ensure redemptions that were not allowed in the past.
Grayscale claimed it would reduce its fees in case GBTC was changed to an ETF. The fund’s annual fee was 2%. The ruling is set to erode the discounted pricing of GBTC.
Grayscale victory over SEC is poised to spur uptake of Coinbase stock in the hopes of the ruling bringing a highly sought Bitcoin ETF. Coinbase is identified in most bids awaiting approval to offer a surveillance-sharing agreement.
The applications pending approval would witness a change of review date with SEC likely to delay the verdict date.
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