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As the eagerly anticipated deadline for Bitcoin ETF applications approaches, there are growing expectations that the US Securities and Exchange Commission (SEC) is prepared to approve spot Bitcoin ETFs. 

However, Bloomberg’s ETF expert, Erich Balchunas, has shed light on a potential catch, revealing that the SEC will likely require clear language regarding cash-only creations and a signed agreement with an authorized participant (AP). 

Could Grayscale’s GBTC Conversion Make Or Break SEC’s Decision?  In a recent post on X (formerly Twitter), Balchunas suggests that while Grayscale, one of the world’s largest crypto asset managers, has already fulfilled these requirements, its existing advantage in terms of embedded assets and volume may pose a challenge for the SEC in maintaining a “level playing field.”

According to Balchunas, the SEC’s primary concern is ensuring fair competition among all qualifying issuers. Consequently, the commission may view Grayscale’s potential conversion of its Grayscale Bitcoin Trust (GBTC) into an ETF as unfair due to the substantial advantage it would possess from the outset. 

Balchunas highlights that with $20 billion in embedded assets and a daily embedded volume of $150 million, GBTC would instantly rank among the top 1% of all ETFs. 

According to the ETF expert, this predicament places the SEC in a delicate position, as approving GBTC could risk becoming a “kingmaker,” biasing the race in favor of a single participant.

Cash-Only Bitcoin ETF Provide Advantages? Balchunas also clarifies that including clear language on cash-only creations in Bitcoin ETF applications may not make them less attractive to investors. 

One key advantage is that grantor trusts, like GBTC, are not subject to taxation at the fund level, eliminating a significant concern. Additionally, when examining the approximately 450 cash-only ETFs already on the market, their spreads and premium/discount ratios appear to be within reasonable ranges. 

Overall, the SEC faces the challenge of ensuring fairness while considering the potential advantages certain issuers may possess regarding embedded assets and trading volume. 

The SEC aims to establish a level playing field for all participating ETF issuers by requiring clear language on cash-only creations and signed agreements with authorized participants. 

However, given its substantial market advantage, the commission must carefully weigh the impact of approving GBTC. 

Ultimately, the SEC’s decision will significantly shape the competitive landscape of the Bitcoin ETF market and its participants, potentially influencing the success of established players like Grayscale and industry heavyweights such as BlackRock and Fidelity.

The 1-day chart shows BTC’s sideways price action. Source: BTCUSDT on At present, the price of Bitcoin stands at $42,800, reflecting a modest increase of 0.6% within the last 24 hours. However, over the past seven days, the leading cryptocurrency has experienced a price decline of 2.3%. 

Featured image from Shutterstock, chart from 

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March 2024


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