Despite the efforts of high-powered legal talent to persuade the Securities and Exchange Commission, the ETF industry so far hasn’t succeeded in its stubborn efforts to get a spot-priced bitcoin exchange-traded fund approved.
Now, the industry seems focused on a radically different strategy to launching such a fund—by using a shareholder activist approach to pressure regulators.
Grayscale Investments announced a public campaign prompting investors to submit comments to the SEC about the company’s effort to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF. According to the firm, a conversion would allow Grayscale to cut the trust’s management fees, do better at tracking bitcoin prices and up-list the trust from the over-the-counter OTCQX exchange to the New York Stock Exchange.
After peaking at $45.38 billion in assets in November 2021, the Grayscale trust has seen its asset base tumble by roughly 45% to $25.71 billion. Nevertheless, it still ranks No. 1 among the biggest cryptocurrency-linked securities traded on U.S. stock exchanges.
During its storied history, however, the Grayscale Bitcoin Trust has done a poor job of actually tracking the price of bitcoin itself. While bitcoin has climbed 3,288% during the past five years, Grayscale’s fund gained just 1,978%. Put another way, the fund’s shareholders missed out on 1,310% growth. Nearly everyone who’s aware of those limitations, including the management at Grayscale, realize there’s an obvious need for a better product structure.
Among the other obstacles to the fund’s success are its massive premiums and its discounts to net asset value.
The premium frothed out at 132.6%. But since bitcoin’s downtrend, which started last year, the Grayscale fund’s premium recently flipped to a 26% discount.
Some industry observers think the fund will eventually be merged with another ETF or converted.
“At some point, GBTC will probably be allowed to merge into a fund that Grayscale gets approved or gets to convert to an ETF,” said Eric Balchunas, a senior ETF analyst at Bloomberg, in a recent episode of the “ETF Battles” podcast and video. Balchunas also noted that any premiums or discounts inside the Grayscale fund would evaporate on any such news of an ETF conversion or merger.
“American investors should have a choice in how to obtain bitcoin exposure,” said Grayscale’s CEO, Michael Sonnenshein. “It is clear we have reached a tipping point in the adoption of digital assets. Maintaining the regulatory status quo may feel like the safe option, but the reality is that failing to keep pace with change is the far riskier path for Main Street investors and our country.”