Overwhelming Support for Grayscale Bitcoin Trust to Spot ETF Proposal

The SEC has allowed comments and feedback on a proposed rule change that would convert Grayscale’s Bitcoin Trust into a spot exchange-traded fund (ETF).

A notice of a proposed rule change to list and trade shares of the Grayscale Bitcoin Trust as a spot ETF has sparked a long list of comments, overwhelmingly in favor.

Bloomberg senior ETF analyst Eric Balchunas looked through some recent comments on Feb. 15 and found that 95% support the proposed switch.

Several respondents to the SEC proposal argued that the regulator has already approved futures-based exchange-traded products, so it stands to reason that spot-based products should be the next step. Others added that the U.S. risks falling behind countries such as Canada that have approved such investment products.

A spot-based fund would be physically backed by the asset itself, rather than futures contracts on the Chicago Mercantile Exchange (CME), which is how existing bitcoin ETFs work.

Another comment noted that current funds create arbitrage opportunities that can take advantage of retail investors.

"The current structure of closed-end funds results in premiums and discounts to fund prices relative to NAV, which creates arbitrage opportunities for more sophisticated traders to take advantage of uninformed retail investors."

Grayscale Bitcoin Trust has been trading at a steep discount in recent months as investors speculate and hedge against the SEC-approved ETF. According to Ycharts, the fund is trading at a discount of 24.75% at the time of writing. This means that at BTC's current price of around $43,600, the fund discount would equate to around $32,500.

One investor said he had put his life savings into the fund and was tired of the SEC trying to protect people, adding that the regulator was only there to "help the rich." The financial watchdog has repeatedly cited a lack of investor protection as a reason for delaying or rejecting cryptocurrency-based investment products.

Grayscale initially hinted at converting the world's largest bitcoin trust into a spot ETF in October. On Feb. 4, the SEC delayed a decision on switching a $37 billion GBTC fund, citing equally familiar concerns about manipulation, liquidity, and transparency.