‘GBTC’ Applies To Convert To ETF

On the same day the first bitcoin-linked ETF hit the market, Grayscale Investments is kicking off an attempt to turn its $39.8 billion Grayscale Bitcoin Trust (GBTC) into an ETF.

The NYSE Arca petitioned the SEC to allow the conversion in a Tuesday morning filing on behalf of the digital asset manager. In a blog post, Grayscale said the launch of the ProShares Bitcoin Strategy ETF (BITO) is an “indication of the agency’s comfort in bitcoin as an underlying asset.”

“We’ve never seen greater maturity within the digital asset ecosystem, and we’re confident that this is the next step in the journey of GBTC’s life cycle,” Grayscale CEO Michael Sonnenshein said in a statement released alongside the filing.

In theory, the trust’s conversion to an ETF would allow it to create and redeem shares easily and bring it in line with the market price of bitcoin. The fund’s shares closed Monday at a 22.8% discount to the actual price of bitcoin.

GBTC is the largest private-placement bitcoin vehicle in the world today, providing 0.00093 of a bitcoin in exchange for a 2.0% expense ratio. That’s more than twice as much as the cost to hold BITO and the Valkyrie Bitcoin Strategy ETF (BTFD), which is awaiting the SEC’s green light to launch.

The filing also doesn’t come as a surprise, as Grayscale has signaled for weeks that it would seek to convert GBTC and its other digital asset trusts into ETFs under the Securities Act of 1933. A mutual-fund-to-ETF conversion of that asset size was already shown to be possible when Dimensional Fund Advisors converted $28.6 billion in mutual fund assets into ETFs in June, and there is now tacit approval from the SEC for bitcoin-linked ETFs to trade.

But it’s unclear whether regulators will allow both of those boundaries to be crossed at the same time under one fund, or how long such a review could take.

Ben Johnson, the director of global ETF research at Morningstar, said the SEC will need to have its concerns about fraud and manipulation in the bitcoin market calmed before it would approve any kind of direct investment vehicle.

“I don’t think the SEC is in a big hurry to sign off on any ETFs that own actual bitcoin,” he said in an email.

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