Morgan Stanley Increases GBTC Shares, SEC Weighs ETF Conversion

Morgan Stanley appears to have held more than 13 million shares of Grayscale Investments’ Bitcoin Trust (GBTC) across 17 portfolios at the end of 2021, according to regulatory filings published last week.

The GBTC shares were valued at roughly $458 million, a Blockworks analysis of the disclosures found. The positions represented between 0.7% and 1.1% of the net assets in the respective funds, the filings indicate.

The $10.7 billion Morgan Stanley Growth Portfolio held about 4.3 million shares of GBTC at the end of 2021, the most of any of the 17 funds. The shares in the portfolio had a value of $147 million at the time.

The share total in the fund was about 18% more than the roughly 3.6 million of GBTC shares it held at the end of September.

The Morgan Stanley Insight Fund also added more shares of the Grayscale Bitcoin Trust to its portfolio during the fourth quarter, a separate filing shows. The offering, which currently manages $3.7 billion in assets, had more than 1.7 million shares of GBTC with a value of nearly $60 million as of Dec. 31.

Filings published in November showed the Insight Fund owning about 1.5 million shares of GBTC at the end of the third quarter. 

The latest Morgan Stanley regulatory filings were highlighted last week by a Twitter account called MacroScope.

GBTC launched in 2013 and currently has $25.4 billion in assets under management. Eligible shares are quoted on the OTCQX.

A Morgan Stanley spokesperson declined to comment on the positions in GBTC and the company’s thoughts on the trust’s proposed conversion to an ETF.

Input on GBTC conversion continues rolling in

The disclosures were released about a week after Grayscale launched a marketing campaign urging investors to submit comments to the Securities and Exchange Commission about its proposal to convert GBTC into an ETF.

Hundreds of letters on the topic have been submitted to the regulator.

Paul Grewal, chief legal officer at Coinbase, who wrote in support of the conversion in December, submitted another letter on March 3.

Bitcoin’s average daily trading volume in 2021 was approximately $45 billion, he noted in the letter. In terms of hour-end prices for bitcoin across the four exchanges used as inputs to the GBTC’s pricing, the exchanges showed less than 20 basis points deviation 97% of the time over a roughly three-year time horizon.

“The bitcoin markets exhibit characteristics and maturity commensurate with some of the deeply traded markets in commodities and US equities,” Grewal wrote.

“The liquidity and transparency of the bitcoin markets limits its susceptibility to manipulation, which we believe further demonstrates the suitability of bitcoin as an underlying asset for an [exchange-traded product].”

Zac Prince, the founder and CEO of BlockFi, voiced support for the conversion in a Feb. 22 letter to the SEC, noting that the agency’s approval of the proposal would benefit US financial markets and investors.

“Currently, we are falling behind other capital markets where spot cryptocurrency products are already listed,” Prince wrote.

“US consumers who invest in GBTC in their retirement or taxable accounts are losing money because the product is a trust not an ETF.”

The regulator, which has not yet approved an ETF that invests in bitcoin directly, is expected to rule on GBTC’s conversion to an ETF in July when its 240-day review period expires.

Several spot bitcoin ETFs launched in Canada in 2021, and the launches of ETPs investing directly in bitcoin, ether and other cryptoassets have become more prevalent.

Lawyers representing Grayscale have argued that the SEC’s approval of a bitcoin futures-based ETF and not a spot bitcoin ETF is a violation of the Administrative Procedure Act.

Kristin Smith and Jake Cervinsky, the Blockchain Association’s executive director and head of policy, respectively, urged the SEC to approve GBTC’s conversion in November.

Smith told Blockworks in an interview last month that she believes “it’s going to be awhile” before the SEC approves a spot bitcoin ETF, noting that the Blockchain Association is evaluating ways to move the process along.

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