Nov 16, 2022 - Economy

Dusk has fallen on the Bitcoin Trust

Illustration: Sarah Grillo/Axios

Grayscale Bitcoin Trust, or GBTC, traded Thursday at a record 42% discount to the underlying value of the bitcoin it holds.

Why it matters: Many saving and investing platforms have been offering Grayscale crypto funds to customers who request exposure to digital assets. As the biggest U.S. investment fund to offer exposure to bitcoin, it would seem like a natural choice.

  • One of those platforms, Stash, has been offering GBTC in its robo-advised "Smart Portfolios."
  • When Axios asked Stash whether users were made aware of the risk in that growing discount before they were invested, it declined to answer directly. A spokesperson later said investors were given general information on it carrying higher expense ratios than most ETFs.

The big picture: Hopes hang on regulators approving a spot bitcoin ETF.

  • An ETF would keep the price hewing to net asset value (reflecting the real price of bitcoin), and Grayscale plans to convert GBTC to an ETF if they are allowed to.

State of play:'s collapse has been another setback for the crypto industry. And one of the most tangible repercussions could be what happens to spot bitcoin ETF.

What they're saying: Steven McClurg, CIO of crypto ETF provider Valkyrie Investments — whose own spot bitcoin ETF was rejected — tells Axios: "We don’t believe a spot ETF would be approved in 2023 nor is it on the agenda.

  • The SEC has made it clear that a SEC regulated exchange for bitcoin would have to exist first, and that could take some time."

Catch up fast: Grayscale is in a legal battle with the SEC over rejected applications for a spot bitcoin ETF, ratcheting up its campaign for one after its most recent denial earlier this year.

  • The lawsuit argues that the SEC "is failing to apply consistent treatment to similar investment vehicles" referencing the SEC's approval of bitcoin futures ETFs.
  • The firm found a supporter in the U.S.'s largest crypto exchange, Coinbase Global, last month.

Flashback: Recall the SEC rejected the first bitcoin ETF application, from Tyler and Cameron Winklevoss in March 2017, citing concerns about fraud and market manipulation that make it incompatible with rules of a national securities exchange.

Zoom in: Crypto customers are top of mind, even more so after the FTX fallout.

  • Grayscale, per its lawsuit against the SEC, also argues that the absence of a spot bitcoin ETF hurts the crypto curious.
  • And the SEC thinks it's doing its job by keeping these ETFs out of reach.
  • Stash CEO Brandon Krieg, for his part, says he's not "pushing crypto" and that the industry badly needs a regulator: "What I don’t like is that there is no regulator, so it allows all this bad behavior."

The bottom line: Who knows whether a bitcoin ETF would have been approved or not, but if it's not approved it's easy to imagine folks will blame it on this chaos.

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