Grayscale Seeks ETF Expansion Amid Ongoing Legal Battle over Spot Bitcoin Fund

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Joel Frank

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Since graduating with a degree in economics from the University of Birmingham in 2018, Joel has worked as a financial market/cryptocurrency analyst. He firmly believes that emerging crypto technology...

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June 26, 2023 06:58 EDT

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In a sign of dedication to its efforts to launch a spot Bitcoin Exchange Traded Fund (ETF) in the US, Grayscale Investments is trying a new approach.

The digital asset manager, currently the world’s largest, announced on Wednesday the formation of a new trust, Grayscale Funds Trust.

The new Delaware statutory trust structure will allow Grayscale to independently manage its 1940 Act products as the firm continues to expand its ETF business, the company said.

“The creation of Grayscale Funds Trust reflects our dedication to scaling Grayscale’s business responsibly,” said Grayscale CEO Michael Sonnenshein. “We are putting the necessary foundations in place so Grayscale can continue creating and managing regulated, future-forward products”.

The firm also announced that is has filed a new registration statement with the US Securities and Exchange Commission for a new Ethereum Futures ETF, a new Grayscale Global Bitcoin Composite ETF and a Grayscale Privacy ETF.

“Today’s filing demonstrates our continued commitment to offering investors innovative ways to access the digital economy and transformative technologies using a familiar, trusted, regulated investment vehicle: the ETF,” stated Grayscale Global Head of ETFs David LaValle.

Grayscale’s Ongoing Legal Battle Over Spot Bitcoin Fund

The SEC continues to refuse to approve spot Bitcoin ETF products in the US, mainly as a result of the fact that the cryptocurrency exchanges upon which spot Bitcoin is traded in the US remain largely unregulated.

The SEC has said that spot ETFs are vulnerable to fraud and manipulation and back in January, the SEC rejected a proposal by Grayscale to convert it Bitcoin Trust (GBTC) into an ETF.

But the SEC has approved Bitcoin Futures ETFs, given that these Bitcoin futures are traded on regulated US exchanges like the CME.

Grayscale is currently engaging in legal warfare with the SEC over what it has, in the past, referred to as the agency’s “illogical” and “fundamentally unreasonable” arguments against approving a spot Bitcoin ETF.

“A successful manipulation of prices in the spot bitcoin market would necessarily affect the price of bitcoin futures as well – and, therefore, the value of bitcoin futures ETPs’ holdings”, Grayscale argued.

Grayscale is eager to get its Bitcoin Trust converted into an ETF as that might help reverse some of the steep discount that it is trading to versus the actual Bitcoin price.

The GBTC discount was last around 37% as of Tuesday, as per YCharts.