Grayscale Amends Bitcoin ETF Application, Excludes Authorized Participant Details

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Hassan Shittu

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Hassan Shittu

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January 1, 2024

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Grayscale, a prominent cryptocurrency asset management firm, has filed an amendment to its registration statement with the U.S. Securities and Exchange Commission (SEC).

On January 2, Grayscale filed an amended Bitcoin exchange-traded fund (ETF) application with the SEC, but the filing lacks details about authorized participants. It submitted a filing, known as an S-3 form, which is typically used for securities offerings and registrations.

New Grayscale amendment just dropped. Clear language on cash only but still no AP named, just blanks where name should go. Not sure why since SEC wants to see it and they have been pretty cocksure about having one. Also, nothing on fee (that I could see). That's big open q too. https://t.co/tQ9MTBlvg8 pic.twitter.com/id8Tb8ImaP

— Eric Balchunas (@EricBalchunas) January 2, 2024

The amendment, labeled “amendment no. 3,” is specifically filed for the purpose of submitting certain exhibits and does not indicate modifications to any provisions of the prospectus that constitute a part of the registration statement.

The updated application includes clear language indicating that Grayscale has adopted a cash-creating strategy, where the company only receives and pays out cash in exchange for shares in the fund. Although this strategy aligns with the SEC’s requirement for ETF issuers, as Grayscale intends to use the cash to buy and hold spot Bitcoin, it will not pay out or receive bitcoins from customers.

Notably, the filing did not name an authorized participant (AP) for the conversion of GBTC to an ETF. An authorized participant is typically the first to purchase and trade shares. However, the document left the names of the authorized participants blank, raising questions about the omission, especially when other firms have listed their participants in recent filings.

While Grayscale’s CEO, Michael Sonnenshein, has mentioned that the company has had an AP lined up since 2017, the latest filing did not disclose the specific entity. It remains unclear whether the absence of a clearly defined AP in the filing could impact Grayscale’s chances of approval from the SEC.

Eric Balchnas, a senior ETF analyst at Bloomberg, highlighted this development on X (formerly Twitter), noting that there are no specific details provided, only the addition of exhibits related to the trust’s third-party relationships.

He expressed uncertainty about Grayscale’s decision to omit authorized participant details, as the SEC typically wants to see such information. He also noted the absence of information about fees in the filing.

Bitcoin ETF Race Heats Up as Firms, Including Fidelity, Grayscale and WisdomTree, List Authorized Participants in Updated Filings

On December 29, seven companies vying to launch the first U.S. Bitcoin Exchange-Traded Fund (ETF) filed updated Form S-1 applications. Fidelity, WisdomTree, and Invesco Galaxy disclosed their authorized participants, with Invesco Galaxy selecting Virtu and JPMorgan, while WisdomTree and Fidelity listed Jane Street Capital.

Authorized participants play a crucial role in the creation and redemption of shares in an ETF. Grayscale had previously indicated its intention to list Jane Street and Virtu Financial as authorized participants when converting its Grayscale Bitcoin Trust into an ETF in June 2022.

The Securities and Exchange Commission (SEC) has set a deadline of January 10 to deliver a verdict on the latest Bitcoin ETF filings. Industry experts speculate that the SEC may respond to the applying firms by the end of the first week of 2024. The potential approval of a Bitcoin ETF is eagerly anticipated in the cryptocurrency space, with far-reaching implications for market participation and investment.

In a social media post on X (formerly Twitter), Michael Sonnenshein, CEO of Grayscale, mentioned a “big work week,” sparking speculation about significant developments in the crypto market.

big work week.

— Sonnenshein (@Sonnenshein) January 2, 2024

Some interpret this statement as a hint at anticipation for key developments, particularly related to the potential approval of a spot Bitcoin ETF by the SEC. Reports suggest that the SEC might reach out to Bitcoin ETF issuers as early as January 6.

In the previous week, Grayscale made headlines by amending its filing to convert the Grayscale Bitcoin Trust (GBTC) fund into a spot Bitcoin ETF following the departure of Grayscale Investments’ chairman, Barry Silbert. Analysts, such as Seyffart, interpreted this move as Grayscale “bending the knee” and accepting the SEC’s requirement for cash-only orders.

Grayscale’s GBTC currently holds $26 billion in assets under management (AUM) with a 2% management fee. If approved, the conversion to an ETF could potentially lower fees and increase liquidity for investors using it as a vehicle to gain exposure to Bitcoin. The GBTC has historically traded at a premium or discount, affecting its efficiency in tracking Bitcoin’s price.