Grayscale tells SEC that turning biggest bitcoin fund into ETF will unlock $8 billion for investors

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Michael Sonnenshein, CEO, Grayscale Investments at the NYSE, April 18, 2022.
Source: NYSE

Grayscale, the asset manager running the world’s largest bitcoin fund, met privately with the Securities and Exchange Commission last week in an effort to persuade the regulator to approve the conversion of its flagship fund into an ETF, CNBC has learned.

Turning the Grayscale Bitcoin Trust into a NYSE-traded ETF would broaden access to bitcoin and enhance protections while unlocking up to $8 billion in value for investors, according to a 24-page presentation obtained by CNBC.

That’s because the trust, known by its GBTC ticker, has traded at an average 25% discount to the price of its underlying asset since early 2021, a discount that should disappear upon conversion, the company said.


Led by CEO Michael Sonnenshein, Grayscale has engaged in a high-stakes campaign to pressure the U.S. regulator to approve the first spot-based bitcoin ETF. The asset manager has watched as competitors including ProShares win approval for futures-based bitcoin exchange-traded funds, showing that the SEC is more comfortable with products based on futures over those based on bitcoin.

A spot-based bitcoin ETF would be a significant milestone in the adoption of digital assets because it would open them up to ordinary investors in a familiar wrapper that trades like a stock. The goal has eluded the industry for more than five years. Grayscale’s first application for a spot bitcoin ETF was in early 2017.

GBTC holds roughly 3.4% of the world’s bitcoin and is owned by more than 850,000 U.S. accounts, according to Grayscale. The fund, which enabled institutional investors like Ark Invest’s Cathie Wood to bet on bitcoin, ballooned to more than $30 billion in size before the recent crypto retrenchment brought its assets to $20.1 billion.


The investment firm has helped coordinate a public letter-writing push, flooding the SEC with more than 3,000 letters in support of its application. The firm even hinted that it would sue the SEC if its application was denied.

The deadline for the SEC to approve or reject Grayscale’s application is July 6.

Most analysts aren’t bullish on SEC approval after a half-dozen similar applications from competitors have been denied since November. The SEC is concerned with the potential for fraud and manipulation in bitcoin markets and has indicated it won’t approve a spot-based application until global exchanges are better regulated.

That may explain Grayscale’s approach, which seemed to alternate between flattering the agency (“The SEC is uniquely positioned to support the White House Executive Order to ensure America leads in digital asset innovation,” according to one slide) and criticizing it:

“The SEC is discriminating against issuers by approving bitcoin futures ETFs and denying bitcoin spot ETFs,” according to Grayscale.


Grayscale argued that a spot bitcoin ETF is “no riskier” than futures-based ETFs, because the two markets are both affected by the underlying price of bitcoin and track each other closely.

The firm also took pains to outline its increasing disclosures tied to GBTC and its network of partners, including BNY Mellon and Coinbase, who are ready to help its conversion process.

The SEC didn’t immediately return a request for comment.

Sophie Tremblay

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