Grayscale commits to converting GBTC into Bitcoin ETF as fund dominance declines

Grayscale recently announced that it would convert its Bitcoin trust to an exchange-traded fund when the regulatory environment in the United States starts to warm up to Bitcoin exchange-traded funds (ETFs).

GBTC conversion could make it the most liquid commodity ETF

The US has not approved any Bitcoin ETFs so far. Having submitted an application for a Bitcoin ETF in 2016, investment giant Grayscale revealed that launching this product was its goal from the start.

After the application, Grayscale was also in discussions with the US Securities & Exchange Commission for most of 2017. The investment company eventually withdrew its application, because it believed “the regulatory environment for digital assets had not advanced to the point where such a product could successfully be brought to market.”

Grayscale explained that each of its trusts has a particular life cycle, and the final stage was for the conversion into an ETF. The first part of its life cycle kicked off with the launch of a private placement, where sales of stock shares or bonds are only available to pre-selected investors and institutions.

The second phase then involves the trusts obtaining a public quotation on secondary markets, allowing exchanges to provide information on their shares. The third stage is to become regulated by the SEC. Currently, Grayscale Bitcoin Trust and Grayscale Ethereum Trust have reached this stage.

ETFs allow institutional investors to get exposure to the asset’s volatility without holding the underlying asset. The firm stated:

Today, we remain committed to converting GBTC into an ETF, although the timing will be driven by the regulatory environment. When GBTC converts to an ETF, shareholders of publicly-traded GBTC shares will not need to take action and the management fee will be reduced accordingly.

With the conversion of GBTC to a Bitcoin ETF, shareholders will no longer have to endure a six-month lockup or a 2% annual management fee. This could bring the trust more in line with the net asset value (NAV) of Bitcoin, according to James Seyffart, an ETF research analyst at Bloomberg Intelligence.

By announcing the ETF conversion, the fund could keep its liquidity — with $38.8 billion assets under management — and make shareholders who are coming to the end of their lockup period happy.

Grayscale CEO Michael Sonnenshein said that if GBTC were converted into a Bitcoin ETF, it would be one of the most liquid commodity ETFs today. 

Grayscale loses dominance

GBTC’s premium was turned into a discount in February when regulated Canadian Bitcoin ETFs emerged, leading to a decline in Grayscale’s dominance, according to Arcane Research.

Three Canadian ETFs have been approved, including Purpose ETF, Evolve ETF and Galaxy ETF — accounting for 2.5% of the market share. On the other hand, the US SEC has turned down all applications for Bitcoin ETFs so far.

According to Seyffart, Grayscale plans to convert all of its products to ETFs eventually, and it is unlikely that the SEC will consider ETFs of other cryptocurrencies before 2022.

However, since institutional demand is rising for exposure to the leading digital currency, it is just a matter of time until Bitcoin ETFs get approved.