Grayscale has recently submitted an updated filing to the Securities and Exchange Commission (SEC) in a significant move towards transitioning its GBTC into a spot Bitcoin exchange-traded fund (ETF). The filing includes the adoption of a cash redemption model, aligning with other prominent players in the industry for regulatory compliance.
Grayscale Adopts Cash Redemption Model
According to Bloomberg Intelligence ETF research analyst James Seyffart, Grayscale has made a notable stride in the direction of launching a Bitcoin ETF by submitting an amended S-3 filing with the SEC. This filing aims to convert GBTC to a Bitcoin ETF, embracing the cash redemption model. Seyffart comments, “Even Grayscale is accepting the SEC’s Cash-only creation/redemption edict. Looks like they’re bending the knee.”
BlackRock, ARK Invest, and 21Shares have also pursued the cash redemption model previously, acknowledging its advantages in terms of regulation and compliance.
The Cash Creation and Redemption Model
Under the cash creation and redemption model, investors will transact with cash in exchange for Bitcoin holdings. Unlike most ETFs, investors cannot exchange BTC for ETF shares. Bloomberg Intelligence ETF analyst Eric Balchunas clarifies, “The investors cannot ‘hand in btc in exchange for ETF shares like in most ETFs'”.
The filing states, “Participant can only submit Cash Orders, pursuant to which the Authorized Participant will deposit cash into, or accept cash from, the Cash Account in connection with the creation and redemption of Baskets.” Hence, the Trust can currently accept Cash Orders but is unable to create and redeem shares via in-kind transactions with Authorized Participants, which is a common practice for other spot Bitcoin exchange-traded products.
However, the filing also includes a puzzling change in relation to airdrops and forks. Finance lawyer Scott Johnson points out, “The only real headscratcher in the GBTC S-3 amendment is a change to airdrops/forks whereby Grayscale is definitively abandoning all of them.” It remains unclear why Grayscale made this change, and it might be attributed to SEC mandates.
Parallel Developments with Other Bitcoin ETF Issuers
While Grayscale actively pursues its transition, other Bitcoin ETF issuers are also making strides. Seyffart reveals a memorandum documenting Hashdex’s meeting with the SEC on December 26th. Interestingly, Samir Kerbage, Hashdex’s CIO and Head of Products, had a meeting at the SEC Chair Gary Gensler’s office, a departure from the usual protocol of meeting with the Trading and Markets or Corporate Finance divisions.
