Crypto investment firm Grayscale has been working for the better part of a year to convert its Grayscale Bitcoin Trust—which has over $28.5 billion in assets under management—into a Bitcoin exchange-traded fund, or ETF.
Standing in its way, however, is the U.S. Securities and Exchange Commission (SEC), which has yet to approve any crypto-backed spot ETF for American investors.
With the agency set to make a decision by July 6, CEO Michael Sonnenshein would consider suing the agency if the application is rejected. He told Bloomberg, in response to a question about a potential lawsuit, "I think all options are on the table."
The Grayscale Bitcoin Trust allows private investors to buy shares in a pool of Bitcoin so they can gain some price exposure to the asset without having to worry about custody. It also can have certain tax benefits compared to direct investments into Bitcoin. But it also has some downsides, including six-month lockup periods for accredited investors—and pullouts can cause the price to fluctuate.
While GBTC is meant to trade fairly closely to the actual price of BTC, it's currently trading at a 26% discount. That means it's much cheaper to buy than actual Bitcoin—good for those looking to get in, but not so good for investors whose shares are locked up.
Exchange-traded funds differ: They are financial instruments tied to another asset or basket of assets. And because they trade just like company stocks, the price of a Bitcoin ETF should trade very closely to actual BTC. (If so, GBTC investors would be in for a nice payday.)
A Bitcoin ETF is the holy grail for crypto investing firms as it would come with fewer fees for investors, could easily integrate into retirement portfolios, and would still allow everyday users price exposure to Bitcoin without concerning themselves with custody.
But the SEC has denied a long list of crypto ETF applicants, among them the Winklevoss twins, Bitwise, and VanEck. Only in the last year has it allowed Bitcoin futures ETFs—which track the price not of BTC but of BTC futures products. Bitcoin futures are contracts between traders to buy or sell an asset if the price of the cryptocurrency reaches a certain level by a specific date; futures markets indicate which direction traders think the price is going, while spot markets show what the asset currently sells at.
The SEC's reasoning for allowing Bitcoin futures ETFs while denying Bitcoin spot ETFs is related to the fact that its sister agency, the Commodity Futures Trading Commission, has regulatory oversight over derivatives exchanges. Neither agency has much in the way of regulatory power over the trading of Bitcoin.
While Sonnenshein called the adoption of Bitcoin futures ETFs "exciting," he says people are itching for more options. "There's actually now over 800,000 accounts in the U.S., all waiting patiently to have it convert into an ETF."
He added: “It’s a matter of when, not a matter of if, a spot Bitcoin ETF is approved.”