• Roughly 11,400 comment letters about Grayscale’s application have been submitted to the SEC since November
  • The investment vehicle has traded at a discount of roughly 30% to its net asset value in recent weeks

While crypto-focused asset manager Grayscale Investments is optimistic ahead of the SEC’s decision on giving the greenlight to the firm’s long-proposed conversion of its bitcoin trust to an ETF, the company’s CEO said it’s preparing for all possible scenarios. 

“We remain encouraged by the SEC’s actions over the past eight months, which have signaled an increased recognition of and comfort with the maturity of the underlying bitcoin market,” CEO Michael Sonnenshein said in a Monday letter to investors. 

The SEC approved the first ETFs to invest primarily in bitcoin futures contracts last October. The agency also last week gave the go ahead to a bearish vehicle managed by fund issuer ProShares designed to deliver the inverse performance of the S&P CME Bitcoin Futures Index.

Sonnenshein tweeted at the time that the latter approval shows bitcoin’s price discovery is supported by a derivatives market “robust enough” to offer short exposure to retail investors.  

The Grayscale Bitcoin Trust (GBTC), which has $13.5 billion of assets, is operationally ready to convert into an ETF when it is granted approval, Sonnenshein added. The investment vehicle has traded at a discount of roughly 30% to its net asset value (NAV) in recent weeks.

“But, as you know, the SEC continues to prohibit spot-based ETFs from coming to market, so the Grayscale team has been preparing for all possible post-ruling scenarios,” he said in the Monday letter.

Grayscale earlier this month hired Donald B. Verrilli, Jr. as a senior legal strategist to work alongside Grayscale’s in-house counsel and its attorneys at Davis Polk & Wardwell. Verrilli was the 46th solicitor general of the United States, serving from 2011 to 2016, and also previously worked as deputy counsel to former President Barack Obama.

The company tweeted at the time that the addition was “to ensure that we have the strongest possible team of legal minds ready to support our BTC ETF application.” Grayscale executives have said they wouldn’t rule out a lawsuit if the application is denied.

Roughly 11,400 comment letters surrounding the conversion have been submitted to the SEC since November. More than 99% of them have been in support of the application, according to Grayscale. 

James McClave, a trader for Jane Street, wrote earlier this month that GBTC’s discount to NAV would likely dissipate if the trust was allowed to become an ETF, benefitting the investment product’s investors. Jane Street is a quantitative proprietary trading firm and liquidity provider that prices more than 5,000 ETFs globally — and has a robust crypto trading business. 

“Based on our experience trading in both the spot and listed derivatives markets for bitcoin, we believe there is a relatively deep and liquid spot bitcoin market that is well situated to support the listing and trading of bitcoin ETPs in the US,” McClave wrote. 

The SEC is slated to rule on a separate spot bitcoin ETF application from Bitwise Asset Management by week’s end. Chief Investment Officer Matt Hougan told Blockworks last week that recent events in the broader crypto markets, such as the collapse of Terra’s UST and LUNA, could impact the regulator’s decision on that and similar products.

Bitcoin traded around $21,000 Monday afternoon, down about 70% from all-time highs last November.   
A number of industry watchers do not expect a spot bitcoin ETF to launch until 2023 — at the earliest.

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  • Ben Strack is a Denver-based reporter covering macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism. Contact Ben via email at [email protected]