Robert Whaley, the founder of the VIX, is supporting Grayscale’s effort to convert the world’s largest Bitcoin fund into an ETF.
Futures-based ETFs must account for the cost of periodically rolling forward contracts as they mature, making a spot Bitcoin ETF more appealing.
If the SEC denies the application, Grayscale CEO Michael Sonnenshein stated in March that the company may consider filing a lawsuit to appeal the decision.
The man who devised Wall Street’s favorite fear gauge has backed Grayscale Investments LLC’s efforts to turn the world’s largest Bitcoin fund into an exchange-traded product.
Grayscale, the asset management of the world’s largest bitcoin fund, met secretly with the Securities and Exchange Commission to try to persuade the agency to accept the conversion of its flagship fund into an ETF.
Robert Whaley, the creator of the VIX, is throwing his support behind @Grayscale ‘s bid to turn the world’s biggest #Bitcoin fund into an ETF https://t.co/eSjdhpQtFQ via @markets cc @kgreifeld $GBTC — Sonnenshein (@Sonnenshein) June 1, 2022
Converting the Grayscale Bitcoin Trust into a NYSE-traded ETF would increase bitcoin’s accessibility and security while also unleashing up to $8 billion in value for investors.
Grayscale tried again in April to get the US Securities and Exchange Commission’s clearance to turn the world’s largest crypto investment vehicle into a fund that trades on major Wall Street exchanges.
According to a letter issued to the Securities and Exchange Commission, the asset manager has focused on a legal detail in order to enhance its application with the regulator to convert its $40 billion Bitcoin Trust into an exchange traded fund.
From January to May 25, Whaley contrasted the returns of the Chicago Mercantile Exchange’s Bitcoin futures index, which BITO follows, to those of the CoinDesk Bitcoin Price Index, which GBTC would track, and discovered that the two are “close to perfect alternatives.”
He compared the returns of the @CMEGroup ‘s index of #Bitcoin futures, which $BITO tracks, to those of the @CoinDesk Bitcoin Price Index, which $GBTC would follow, from January through May 25 and found that the two are “near perfect substitutes.” — Sonnenshein (@Sonnenshein) June 1, 2022
Some netizens say that Gbtc provides a discount that many individuals will never have to use in a crypto derivative. Controlling equity oversight is necessary. It is not permissible to have floating fake overleveraged naked shares.
Gbtc offers the discount many people will never have to enter a derivative of the crypto markets. Oversight of equity needs to be controlled. Cannot have false overleveraged naked shares floating — FROG-E-NOMICS (@SHIBAATTACKNOW) June 1, 2022
Futures-based ETFs must account for the expense of repeatedly rolling forward contracts as they expire, bolstering the case for a spot Bitcoin ETF, according to Whaley.
“Futures-based Bitcoin ETFs like BITO are a considerably more expensive and inefficient way for investors to access Bitcoin than a more transparent and well-designed spot-based Bitcoin ETP like GBTC,” stated Whaley, a finance professor at Vanderbilt University in Nashville. “The Commission must implicitly be okay with a spot-based Bitcoin ETP like GBTC because it has already approved futures-based Bitcoin ETFs.”
According to Martha Reyes , head of research at BEQUANT, a digital asset prime brokerage and exchange,
A futures-based ETF is not optimal since there is a cost to rolling into futures contracts, given contango… translating into underperformance versus the underlying asset, she explained. A situation in which the futures price of a commodity is greater than the spot price is known as contango.
Traders commonly roll over futures to go from a short-term contract that is about to expire to a contract that is months away from expiration. There is a charge for this rollover.
Due to the delays, the SEC has until early July to reach a decision on the application, which was filed in October. Grayscale met with the SEC last month to discuss the matter. Because GBTC is a trust rather than an ETF, shares cannot be redeemed when demand declines, causing GBTC to trade at a discount to the Bitcoin it owns. Grayscale forecasts that turning the trust into an ETF might unlock up to $8 billion in value if the discount is fixed.
Bitcoin ETFs and the SEC:
The SEC’s decision to reject the application isn’t entirely surprising, given that just a handful organizations have requested for the approval, all of which have been denied.
New York Digital Investment Group (NYDIG), Skybridge, Global X, and Fidelity Investments are among these companies.
The SEC rejected the Ark 21Shares joint application in April, which was a concerted effort between Wall Street giant Cathie Wood’s Ark Investment Management and trading firm 21Shares, documented for the benefit of Cboe BZX Exchange. The SEC stated that BZX did not meet the requirements for financial backer insurance because it lacked the weight required by the Exchange Act.