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Investors Stuck in Biggest Bitcoin Fund Flood SEC With Letters

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U.S. Securities and Exchange Commission officials have nearly 200 new pen-pals.

More than 170 letters have been submitted to the agency in February following a tweet from Grayscale Investments LLC encouraging people to share their thoughts on the firm’s application to convert the $26 billion Grayscale Bitcoin Trust (ticker GBTC) into an exchange-traded fund.

That compares to just 14 from when a filing was made in October for the change, through the end of January.

The common denominator across the 200 letters is the SEC’s reluctance to approve an ETF that physically holds Bitcoin. U.S. regulators allowed the first crypto derivatives-based products to begin trading this past October, but have repeatedly denied applications for a spot Bitcoin ETF. That’s exacerbated a persistent issue for GBTC — because it’s a trust, not an ETF, shares can’t be redeemed to align with shifting demand. GBTC has traded at a discount to the value of its underlying Bitcoin for months.

However, Grayscale Chief Executive Officer Michael Sonnenshein — and a large share of the individuals submitting comments to the SEC — believe that ETF conversion would quickly repair the discount.

“We have certainly encouraged investors to submit comment letters for the GBTC conversion to an ETF and we are really encouraged to see the outpouring of support for the conversion itself,” Sonnenshein said in a phone interview. “For us, a lot of of the letters have been echoing what we at Grayscale have been articulating for quite some time and continue to do so today — that investors have been patient and deserve a spot Bitcoin ETF.”

GBTC has plunged more than 17% so far in 2022, outpacing Bitcoin’s 13% decline. The trust’s price closed 25% below the value of the Bitcoin it holds on Thursday, after hitting a record-low discount of nearly 30% last month, according to Bloomberg data.

The trust had been a favorite because it was one of the earliest ways to invest in Bitcoin indirectly and had allowed participants to exploit an arbitrage opportunity when the price was soaring.

The SEC solicits comments from interested members of the public on proposed rule change. In GBTC’s instance, the New York Stock Exchange filed with the U.S. regulator in October to amend its rules to allow shares to be listed and traded on the exchange — effectively converting the trust into an ETF.

The letters submitted so far run the gamut from completely anonymous submissions to self-described individual investors and financial advisors.

“As an investor, I don’t feel I’m being protected by the SEC,” wrote Clay Craven on Feb. 14. “It’s past time for the SEC to approve the GBTC ETF conversion and stop harming investors and the country by outsourcing capital to foreign countries where spot BTC ETFs are already trading and approved by regulators.”

Fellow letter author Nicole Jackson made a similar point on Monday.

“The BTC Spot ETF needs to be approved ASAP,” Jackson wrote. “It’s an absolute embarrassment that countries around us have a spot approved and we don’t.”

Accounting for delays, the SEC’s deadline to make a decision is in early July. In the eyes of The ETF Store’s Nate Geraci, the SEC’s comment period is little more than a “charade” and it’s extremely unlikely that the submitted letters will spur a change.

“It simply affords the SEC the opportunity to publicly present that they’re engaged and considering counterarguments to their repeated — and many would say unjustified — denial of a spot Bitcoin ETF,” said Geraci, president of investment-advisory firm. “SEC Chair Gensler has been crystal clear they won’t approve a spot Bitcoin ETF until there’s a robust regulatory framework in place around crypto exchanges.”

(Image: Adobe Stock) 

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