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There are currently 13 different spot ETF applications with the US Securities and Exchange Commission (SEC), and Grayscale’s is one of them. The company wants to convert its existing exchange fund GBTC into a spot ETF. According to the company, this is a huge benefit for existing investors as they could easily earn additional returns on their shares.
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“Bitcoin spot exchanges are superior”
Craig Salm, Grayscale’s legal chief, and Edward McGee, Grayscale’s CFO, explain this in a blog article. The duo explains exactly how exchange traded funds (ETFs) and GBTC work and why Grayscale wants to make GBTC a spot ETF.
Grayscale Bitcoin Trust (GBTC) is not a spot ETF but a trust fund. The fund is huge and currently holds about 3% of all Bitcoins in circulation. However, the price of GBTC is very volatile as it does not follow the value of Bitcoin (BTC) one-to-one. Instead, it is highly correlated with price. This means that in bear markets the fund is cheaper than “real” Bitcoin and in bull markets the price is higher than the Bitcoin price.
The company wants to convert this fund into a spot ETF. The market considers this type of exchange fund as a sort of holy grail for the crypto market as it would allow a large number of investors to invest in crypto. These ETFs also generally charge lower management commissions than funds that actively manage their money.
Is converting GBTC fund into a crypto ETF beneficial for investors?
If Grayscale can convert the fund into a spot ETF, this would mean the fund would track the Bitcoin price much more closely. At the end of November, there was a discount of just over 8% for GBTC, according to executives. After the fund became a spot ETF, this discount disappeared.
Theoretically, the stock would then be worth 8% more, essentially giving investors free money. As of the end of last month, the company managed around 23.4 billion worth of Bitcoins. After the change, Grayscale could immediately pay customers $1.89 billion in added value by aligning the GBTC rate with the Bitcoin rate. However, we have to assume that Bitcoin will still be worth around $38,000 by then, just like it was at the end of last month.
That’s exactly what analysts at JP Morgan predicted last month. However, the investment bank was not so optimistic about Grayscale, as the fund could be exposed to massive capital flight in this case.
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