BlockFi Takes on Grayscale, Files for Bitcoin Trust with SEC

Crypto lending firm BlockFi yesterday filed a registration form for a Bitcoin trust with the US Securities and Exchange Commission. The trust, if green-lit by the US financial regulator, would compete directly with the giant Grayscale Bitcoin trust. 

Details in the registration form are scant, but other examples of Bitcoin Trusts involve publicly-traded shares in a pot of privately-invested money that the trust uses to buy Bitcoin. Shares in such trusts often trade at a huge premium to the cryptocurrency in which the trust invests, plus there’s often a large management fee. 

Why are these trusts so popular?

Still, Bitcoin trusts like these are the closest thing the industry can get to a Bitcoin Exchange-Traded Fund, or ETF, which would sell (far cheaper) shares that represent Bitcoin purchased by a fund manager. 

These shares would trade on the stock market; retail investors could purchase shares in a Bitcoin ETF and invest their pension in them, for instance. 

But the SEC has repeatedly blocked applications for Bitcoin ETFs on the grounds that the crypto market is easily manipulable.

Some companies, among them VanEck and Valkyrie Digital Assets, refiled or submitted applications for a Bitcoin ETF shortly after the previous SEC Chair, Jay Clayton, stepped down. A fresh White House and SEC staff roster renew hope. 

While the ETF industry waits, trusts like Grayscale’s have gone from strength to strength. The Grayscale Bitcoin trust now holds $22.9 billion.

What is BlockFi?

BlockFi, founded in 2017, is a so-called "centralized" crypto lending firm. 

Unlike decentralized alternatives, such as Compound and Aave, which lay their tracks on code guide by their communities, BlockFi is run by a company that operates out of New York City that lends out any crypto deposited in its vaults to large companies. 

The company is backed by Coinbase Ventures, Galaxy Digital and Winklevoss Capital.