Apparently, Grayscale Investments is planning to join companies looking to start an exchange-traded fund (ETF) in the US.
Grayscale’s desire to turn the Bitcoin Fund into an ETF seems to have been the firm’s plan from the beginning. Grayscale announced this intention from the company’s blog on April 5, 2021. This announcement restates the company’s insistence on turning the fund into a Bitcoin ETF.
The US investment firm responsible for a huge $ 38.8 billion closed-end Bitcoin fund is preparing to transform the fund into a Bitcoin Exchange Mutual Fund (ETF) as soon as possible.
The firm said in a statement today:
“There have been an increasing number of questions about the possibility of Bitcoin ETFs in the US in recent months, and we would like to take the opportunity to clarify what such a development will mean for Grayscale and Grayscale Bitcoin Trust GBTC.”
The company also applied for a Bitcoin ETF in 2016. Grayscale, who had numerous discussions with the US Securities and Exchange Commission (SEC) on this issue, said: “Ultimately; “We withdrew our application because we believe that the regulatory environment for digital assets has not reached the point where such a product can be successfully launched.”
“We are 100 percent determined to turn GBTC into an ETF. The timing will be determined by the regulatory environment. When GBTC becomes an ETF, shareholders of public GBTC shares will not need to act and the management fee will be reduced accordingly. ”
Although the Grayscale Bitcoin Fund has been converted into a Bitcoin ETF; It will be easier to move the money in and out, and the fund will charge lower administration fees.
How does Grayscale’s Bitcoin Fund work today?
The Grayscale Bitcoin Fund, launched in 2013, is a closed-ended fund. Large institutional investors transfer some money (or some Bitcoin) to Grayscale, then Grayscale deposits this money in Bitcoin and sells the shares in the fund on the exchange. This is one of the few ways that US investors can trade with Bitcoin through the stock market.
However, the business model has a few drawbacks: First, Grayscale charges a high annual management fee of 2 percent, and second, the institutions that fund the fund have to lock their Bitcoins for at least six months, which means their investments are illiquid.
This is also worrying because thirdly, the shares in the fund are different from the Bitcoin price they represent. Usually; Shares in a fund are traded at a certain premium to the Bitcoin price, but last month they were traded at a direct discount.
If the shares are traded at a premium, the shareholders would have paid too much for their Bitcoins. If the shares are traded at a discount, institutional investors who borrowed large amounts of Bitcoin to fund the trust will lose money if they want to sell their shares.