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Grayscale publishes roadmap for turning its products into crypto ETFs

Grayscale publishes roadmap for turning its products into crypto ETFs

Grayscale publishes roadmap for turning its products into crypto ETFs

After several attempts in recent years, Grayscale has renewed its efforts to introduce an exchange-traded bitcoin fund to the U.S. wealth market. According to the roadmap published on Monday, two of its funds, GBTC and ETHE, are on the shortlist to become full-fledged ETFs. However, the company has not indicated specific efforts, such as a new filing with the Securities and Exchange Commission, or a meaningful timetable for implementing these plans.

Grayscale is a leading provider of cryptocurrency exposure in traditional markets and manages several trust funds for major cryptocurrencies. These funds own cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and many others, and issue shares that are intended to reflect the value of the underlying assets.

According to Greyscale’s roadmap, each Trust is divided into four development categories. The first is the private placement stage, where funds are only available for sale and purchase in off-market transactions with the company.

The second category concerns shares listed on the secondary markets, which means that the trust funds are given a ticker symbol and become available for public trading. Trust funds for Bitcoin Cash, Litecoin (LTC) and Ethereum Classic (ETC) fall into this category. Finally, the most sophisticated trusts obtain SEC reporting status by committing to regularly publish their financial statements and transactions with the SEC. Currently, only Bitcoin and Ethereum trusts report to the SEC.

The final and most coveted status is that of an ETF, a fully regulated and liquid fund. ETFs are typically used to gain exposure to indices or packages of assets in the U.S. equity markets. ETFs generally have lower management fees, offer broader coverage than trusts and are designed to track intrinsic value (NAV) very closely. Grayscale’s products are particularly weak from this perspective, as GBTC consistently trades at a very large premium to the value of the bitcoins it holds.

The GBTC premium has recently collapsed and become a fine. The price is currently 10% below the intrinsic value. The loss of this premium, combined with strong competition from bitcoin ETFs in Canada, may be the cause of the grey zone.

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The promise of a bitcoin ETF has been one of Bitcoin’s main storylines since around 2017, when Grayscale first tried to file an ETF with the U.S. Securities and Exchange Commission. Regulators have consistently rejected these requests, often citing the unregulated nature of the bitcoin infrastructure as a major hurdle to overcome. The reporting of bitcoin ETFs was one of the motivations for the 2019 trade volume report, which claimed that up to 90% of the reported volume did not actually exist. This argument was used by the company to argue that a large portion of bitcoin prices were traded on regulated exchanges – but this did not convince regulators at the time.

The flood of bitcoin ETF applications from the likes of VanEck, WisdomTree and SkyBridge continues through 2021, and now Grayscale is coming back into the fold. Given the long string of rejections, the company stood by its promises for the ETF, noting that the timing would depend on the regulatory environment. Institutional acceptance and infrastructure have made tremendous progress since Grayscale’s last efforts, although it is unclear whether this will ultimately affect SEC approval of the initial filing.

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