Tag: GBTC

Grayscale CEO challenges SEC’s denial of application

by Blockchain News

Michael Sonnenshein, CEO of Grayscale Investments, stated in a recent interview that he “can’t imagine” why the United States Securities and Exchange Commission (SEC) “wouldn’t want” to protect Grayscale investors and return the true asset value to them. Sonnenshein made this statement in response to a question regarding why the SEC “wouldn’t want” to protect Grayscale investors.

Sonnenshein explained that the SEC “violated the administrative procedures act” by denying approval for the Grayscale Bitcoin Trust (GBTC) to be a spot Bitcoin (BTC) exchange-traded fund (ETF), in June 2022, during an interview that took place on February 25 on What Bitcoin Did, a popular podcast that is hosted by Peter McCormack. The podcast is called What Bitcoin Did.

He stated that this act ensures that the regulator does not show “favoritism” or act “arbitrarily,” adding that the SEC acted “arbitrarily” by approving Bitcoin Futures ETFs while rejecting “GBTC’s conversion.” He explained that this act ensures that the regulator does not show “favoritism” or act “arbitrarily.”

Grayscale Investments saw the SEC’s approval of the first Bitcoin exchange-traded funds (ETFs) as “a indication” that the SEC was “changing its approach about Bitcoin,” according to Sonnenshein’s observation.

He stated that there is a “couple billion dollars” of capital that would immediately go back into investors’ pockets, on a “overnight basis,” if GBTC was approved as a spot Bitcoin ETF, and that this capital would “bleed back” up to the fund’s net asset value. He said this would occur if the fund was approved as a spot Bitcoin ETF (NAV).

Sonnenshein noted that this is because GBTC is now trading at a discount to its NAV. However, if it were to convert to an ETF, there would “no longer” be a discount or a premium; instead, there would be a “arbitraged mechanism” incorporated in the product.

He reaffirmed that Grayscale is now “suing the SEC now,” and that the company may have a ruling appealing the SEC’s rejection of its original application as early as “fall 2023.”

In addition to this, he said that Grayscale has more than “a million investor accounts,” and that investors from all around the globe trust on the company to “do the right thing for them.”

Sonnenshein “can’t fathom” a scenario in which the SEC would have no interest in “protecting investors” or “returning that value” to those investors.

He continued by saying that Grayscale isn’t going “to shy” away from the fact that it has a “commercial interest” in this approval, noting that if the application to challenge the SEC is denied, Grayscale may be able to appeal the case to the United States Supreme Court. He said that Grayscale isn’t going “to shy” away from the fact that it has a “commercial interest” in this approval.

This comes as a result of the Securities and Exchange Commission (SEC) filing a 73-page brief with the United States Court of Appeals for the District of Columbia in December 2022, outlining its reasons for denying Grayscale’s request to convert its $12 billion Bitcoin Trust into a spot-based Bitcoin ETF in June 2022. The brief was submitted in response to Grayscale’s request to convert its Bitcoin Trust into a spot-based Bitcoin ETF.

The conclusions that Grayscale’s approach did not adequately safeguard against fraud and manipulation were the primary considerations that led to the SEC’s determination.

The regulator has arrived at a same conclusion in a number of past applications for the creation of spot-based Bitcoin ETFs.

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Grayscale withholds on-chain reserve evidence for security reasons

by Blockchain News

Grayscale Investments, a company that sells cryptocurrency investment products, has declined to provide on-chain proof of reserves or wallet addresses in order to demonstrate the digital currency products’ underlying assets, citing “security concerns.” Grayscale Investments is a cryptocurrency investment product provider. Grayscale laid out information regarding the security and storage of its cryptocurrency holdings in a Twitter thread on November 18 that was dedicated to addressing investor concerns. The company stated that all of the cryptocurrencies that underpin its investment products are stored with Coinbase’s custody service, but it refrained from disclosing the wallet addresses.

Grayscale continued by saying, “We are aware that the previous point, in particular, will be a letdown to some,” but “fear created by others is not a good enough justification to violate intricate security mechanisms that have kept our clients’ funds secure for years.”

In the aftermath of FTX’s ongoing liquidity troubles and ultimately bankruptcy, Grayscale has decided to take this step in response to the mounting pressure being placed on the crypto industry to implement proof of reserves.

Some people on Twitter disagreed with Grayscale’s view that security concerns were behind its decision to withhold its wallet addresses. One user commented that although the addresses of Satoshi Nakamoto, the inventor of Bitcoin, are widely known and are of greater value to attackers, “Satoshi’s Bitcoin remains secure.”

Grayscale distributed a letter that was co-signed by Alesia Haas, the CFO of Coinbase, and Aaron Schnarch, the CEO of Coinbase Custody. The letter detailed Grayscale’s holdings according to its investment products and reaffirmed that the assets “are secure.” Additionally, the letter stated that each product has its “own on-chain addresses,” and that the crypto always belongs “to the applicable Grayscale product.”

Grayscale further said that every one of their products is structured as its own independent legal company, and that “rules, regulations, and contracts […] forbid the digital assets underpinning the goods from being leased, borrowed, or otherwise encumbered.”

Although Grayscale is best known for its Grayscale Bitcoin Trust (GBTC), a security that follows the price of Bitcoin, the company also offers products that follow the price of other cryptocurrencies, like Ether and Solana. Genesis Global, which serves as the liquidity provider for GBTC, announced on November 16 that it had halted withdrawals, citing “unprecedented market turmoil” as the reason. This “unprecedented market turmoil” had led to significant withdrawals from its platform, which exceeded its current liquidity. This has caused investor concerns.

Grayscale is also owned by the cryptocurrency-focused venture capital firm known as Digital Currency Group (DCG), which is also the parent company of Genesis.

Investors are speculating on GBTC’s exposure to Genesis, which may be one reason why the company’s stock is selling at a discount of over 43 percent compared to its net asset value.

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Grayscale Launches New Crypto Dealer as Genesis Got Incapacitated With 3AC Bankruptcy

by Blockchain News

Grayscale Investments, one of the largest asset managers in the digital currency ecosystem has launched a new broker-dealer dubbed Grayscale Securities, recent filings with the United States Securities and Exchange Commission show.

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The firm has to launch this new outfit considering the fact that its sister firm, Genesis is battling a liquidity crisis following its huge exposure to the now bankrupt Three Arrows Capital (3AC). Genesis filed a $1.3 billion claim against 3AC, making some of the firm’s broker-dealer operations somewhat difficult to handle at this time.

 

As a dynamic investment manager, Grayscale requires a steady offshoot to handle its crypto trust products and fronting an in-house dealer will afford it the stability it so craves. Grayscale Securities has registered with the SEC as well as with FINRA and it will henceforth be able to source the required crypto holdings for the parent company’s trusts.

 

The transition from the dependence on Genesis as its broker-dealer to the integration of Grayscale Securities kickstarted on Monday, October 3rd. The transition is even more advised as Genesis has been seeing an exodus of its key officials with its current woes brought on by its exposure to 3AC.

 

Grayscale itself has been in the news lately especially with its recent legal spat with the United SEC over the failed conversion of its Grayscale Bitcoin Trust (GBTC) to a full-fledged Bitcoin Exchange Traded Fund (ETF) product. 

 

In its characteristic manner, the SEC rejected the application for the conversion of the product after many delays. With the belief that the SEC’s decision is not in the best interest of its clients and the broader investing community, Grayscale went ahead to onboard Donald Verrilli, a top solicitor during the Obama Administration to lead its lawsuit against the commission.

 

The case is still in its early stages and it comes off as one that may be stretched out like the ongoing SEC vs Ripple lawsuit.

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BlockFi Stops Accepting GBTC as Collateral

by Blockchain News

BlockFi, a major crypto lending firm based in New Jersey, has reversed its earlier decision, and now stop accepting shares in the Grayscale Bitcoin Trust (GBTC) as collateral for loans.

Early Tuesday, the non-bank lender announced that it would cease accepting GBTC as loan collateral.

In a statement, a BlockFi representative said: “While we don’t currently hold any positions in GBTC and are winding down a couple of loans where GBTC is part of the collateral package, we are not saying that we won’t support GBTC as collateral moving forward. Like any collateral, we constantly evaluate appropriate collateral haircut ratios and aim to accept as many types of collateral that our clients hold as possible.”

The earlier move by BlockFi to seek winding down its positions in Grayscale’s Bitcoin Trust was because of its exposure to Singapore-based hedge fund firm Three Arrows Capital (3AC). BlockFi lost about $80 million from Three Arrows’ bad debt in terms of the GBTC investment product whose value dropped massively amid the recent collapse of the struggling hedge fund.

GBTC allows investors to gain exposure to Bitcoin without directly purchasing and holding the cryptocurrency themselves.

Crypto Contagion Risk

The move by these firms, including BlockFi, came as a response to the controversy facing Three Arrows Capital, which had a huge stake in GBTC and was offering arbitrage opportunities around the Grayscale fund.

BlockFi has been hit hard by the contagion risk triggered by the collapse of the Three Arrows Capital. Many other crypto firms, including lending platforms Celsius Network, Voyager Digital, and Vauld, also saw their fortunes wiped off amid the crash of TerraUSD and LUNA and consequently the downfall of the prominent leveraged crypto hedge fund Three Arrows Capital.

Grayscale’s GBTC is a widely traded Bitcoin fund. Recently, Grayscale filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) for rejecting its application to convert its GBTC into a spot Bitcoin ETF (Exchange-Traded Fund). Among the reasons why the SEC rejected Grayscale’s application was the possibility of manipulation of Bitcoin trades — an argument apparently boosted by Three Arrows’ botched arbitrage trading plan.

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Platform Has a Strong Case against SEC, says Grayscale’s CLO

by Blockchain News

A legal official of Grayscale Investment said the company has confidence in a lawsuit against the U.S. Securities and Exchange Commission (SEC). The company is struggling in a legal battle with SEC for applying to convert its Grayscale Bitcoin Trust (GBTC) product to a spot Bitcoin ETF. 

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For many that might have been wondering whether Grayscale Investments has a chance against the United States Securities and Exchange Commission (SEC) whom it dragged to the Court of Appeals, the company’s Chief Legal Officer (CLO), Craig Salm has affirmed that the case the firm has against the regulator is a solid one.

Grayscale initiated a lawsuit last month when it received a rejection decision with respect to its application to convert its Grayscale Bitcoin Trust (GBTC) product to a spot Bitcoin Exchange Traded Fund (ETF). Drawing on the success of the GBTC product amongst investors, Grayscale said it has hoped to step up the designation, and regulatory provisions of the product by upgrading its status.

The SEC, however, did not see the company’s ways and like other notable Bitcoin ETF rejections, the regulator said it has issues with how the price for the spot BTC ETF will not be subject to manipulations. To back its Petition for Review filed with the Appellate Court, Craig said that the SEC is contradicting itself considering it has previously approved a slew of Bitcoin Futures ETF in the US.

To Grayscale, both Bitcoin Futures and Spot Bitcoin ETFs derive their prices from spot Bitcoin making them very similar. In an expository Q&A, Craig said the timeline for the completion of this legal brawl is indeterminate, but from precedent, it may take as much as 12 to 24 months.

“We can’t be certain about timing, but based on how long federal litigation tends to take – including briefings, oral arguments, and a final court decision – it can typically take anywhere from twelve months to two years, but could be shorter or longer. However long it takes, we believe the strength of our arguments should result in a final decision in our favor at the D.C. Circuit Court of Appeals,” he said.

Grayscale is one of the few firms that report its products to the SEC and Craig confirmed that the lawsuit will not alter its working relationship with the regulator. Its confidence in beating the SEC is hinged on its strong case and the prowess of renowned solicitor, Donald B. Verrilli whom the firm recently onboard as a part of its legal team.

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GBTC’s Discount to NAV Hits New Record Low after SEC Declining its Bitcoin Spot ETF Application

by Blockchain News

The shares of the Grayscale Bitcoin Trust (GBTC) saw a new record low of -31% last Thursday, June 30; that is, GBTC’s discount hit -31%, its lowest point in history.

The discount means the market price of GBTC shares is over 31% lower than its net asset value (the value of the underlying Bitcoin).

Before the news regarding U.S. Securities and Exchange Commission (SEC) ‘s rejecting Grayscale’s application to turn its GBTC instrument into an ETF last Wednesday, the GBTC discount was 28.4%.

Investors in the Grayscale Bitcoin Trust (GBTC) face more losses as the popular investment product widens its record discount.

GBTC has long been an investment product of choice for several institutional investors, providing them exposure to Bitcoin without the need to buy the underlying asset.

However, the offering has many drawbacks, including a six-month lockup period and an annual management fee of 2%.

There are several factors behind the poor performance of GBTC. The current discount potentially means a weakening interest in the asset, as there is more GBTC supply than demand. This indicates a bearish signal of broader institutional sentiment towards Bitcoin. Furthermore, new competitive products in the market, like Canadian Bitcoin exchange-traded funds (ETFs), also give new alternatives to investors.

GBTC’s record low comes as Bitcoin struggles below the $20,000 mark. The crypto market has extended its losses as several major crypto coins are in a bloodbath. Bitcoin was trading at $19,080 per coin during the Asia trading sessions on Monday local time. Wider cryptocurrencies have further plunged as investors maintained a panic selling after the recent liquidation of crypto hedge fund- Three Arrows Capital (3AC).

Further Road Ahead

Grayscale considers the conversion of GBTC into a Bitcoin ETF as the best solution. The company recently said it is “100% committed” to turning the investment product into a Bitcoin ETF. However, it appears that the regulatory environment in the U.S. is still not ready.

Last week, Grayscale sued the SEC a few hours after the regulator rejected its application to convert its flagship Grayscale Bitcoin Trust product (GBTC) to an exchange-traded fund (ETF).

Last Wednesday, the SEC turned down Grayscale’s application for a spot Bitcoin ETF, citing the investment management firm’s failure to answer questions about market manipulation concerns. The regulator is concerned investors would lack adequate protections under the Grayscale proposal.

In the past, Grayscale had piled pressure on the regulator to side with its application. In early May, Grayscale met privately with the SEC to persuade the watchdog to approve the conversion of its GBTC into an ETF.

Converting the Grayscale Bitcoin Trust into a NYSE-traded exchange-traded fund (ETF) would widen access to Bitcoin, enhance protections, and unlock up to $8 billion in value for investors. And a discount would disappear upon conversion, that is, according to Grayscale.

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Grayscale Goes to Court After SEC Rejects its Proposed ETF Bid

by Blockchain News

The United States Securities and Exchange Commission (SEC) dashed the hopes of Grayscale Investments with a rejection of its application to convert the Grayscale Bitcoin Trust product to a full-spot Exchange Traded Fund (ETF). 

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In response, the investment asset manager has filed an appeal with the United States Court of Appeals for the District of Columbia Circuit where it will argue that the regulator violated the Administrative Procedure Act (APA) and Securities Exchange Act of 1934.

The SEC’s rejection is predicated on the fact that there is no trusted system with which to prevent fraud, the same position it has hinged its past rejection decisions on. The swift appeal filed by Grayscale is because it was prepared for this sort of action as Chief Executive Officer, Michael Sonnenshein had promised lawsuit months prior to when this final decision was expected.

“Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation — and we are deeply disappointed by and vehemently disagree with the SEC’s decision to continue to deny spot Bitcoin ETFs from coming to the U.S. market,” Sonnenshein said.

The company tapped Donald Verrilli, a top Solicitor under the Obama Administration as a part of its legal team back in June. Verrilli will now be leading the charge against the SEC, arguing that the fact that there are Bitcoin Futures ETFs running on US exchanges invalidates the lack of trust in the safety of the ecosystem that the SEC hinged its decisions on.

“This is a place where common sense has a really important role to play. You’ve got a situation now in which you have certain kinds of exchange traded funds, one that is focused on bitcoin futures, and the SEC has approved that, the SEC is given it the seal of approval,” he said to reporters back in June. “In order to do so it had to make a determination that that giving this approval was consistent with the securities laws, and in particular, that that there wasn’t a sufficient underlying risk of fraud and manipulation.”

The timeline of the appeal is yet to be unveiled, but this may be yet another long-drawn legal battle between a crypto-native firm, and the US SEC after Ripple Labs Inc.

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Grayscale Taps Top Former Obama’s Lawyer in Preparation for Spot BTC ETF Legal Battle

by Blockchain News

Grayscale Investments LLC has hired Donald B. Verrilli Jr to enhance its legal team, who was a solicitor general under the Obama administration from 2011 to 2016.

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The United States Securities and Exchange Commission (SEC) is expected to announce its final decision next month for the application of the conversion of Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin Exchange Traded Fund (ETF) filed back in October last year by Grayscale Investments LLC.

In preparation for this historic verdict, the company has onboarded Donald B. Verrilli Jr as the latest member of its legal team. Verrilli’s reputation precedes him, and he has a lot of years as the Solicitor General during the Obama Administration, a position he held from 2011 to 2016.

The move by Grayscale aligns with the company’s plans to be adequately prepared for whatever outcome it will get from the SEC which in this case is narrowed down to either a ‘Yes’ or a ‘No’. As notably insinuated by CEO, Michael Sonnenshein, getting a No as an answer may ignite a legal action in which the firm plans to sue the SEC.

“It’s paramount that Grayscale has the strongest legal minds working on our application to convert GBTC to an ETF, and we are thrilled that Verrilli will join our outstanding legal team,” a Grayscale spokesperson said, underlining Verrilli’s long experience before the high court, including major wins defending the Affordable Care Act and legal recognition of same-sex marriage.

A lot of asset and investment managers have received rejections to their applications from the SEC with the latest being Fidelity Investments and One River Digital Asset Management respectively. While the majority of pundits might predict another rejection on the way for Grayscale, the firm is notably more enthusiastic it is going to get a Yes, breaking history as the very first in the United States to be granted such approval.

In the runup to July 6, Grayscale said it is preparing the GBTC products so they can easily be converted into a spot ETF should the SEC come through with a positive decision.

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Grayscale Wants SEC’s Approval for Bitcoin ETF With Public Support

by Blockchain News

Grayscale Investments is stirring the public to send a message to the United States Securities and Exchange Commission (SEC) with respect to approving the conversion of its flagship product, the Grayscale Bitcoin Trust (GBTC) to a full-fledged spot Bitcoin Exchange Traded Fund (ETF).

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As reported by Axios, the world’s largest digital assets manager has taken over the Washington, D.C.’s, Union Station with one message: “We care about crypto investors.” The message comes in the form of an advert with a QR Code which when scanned, will lead users to a message board where they can advocate for the approval of the company’s conversion request as the July 6th deadline looms.

The United States SEC has been adamant in rejecting several applications for a spot Bitcoin ETF product despite other advanced economies having access to similar products. Many advocates have refiled their applications while a number of companies have pulled theirs with the likelihood of gaining approval slimmer than one can project.

While the GBTC product is very popular amongst investors, and Grayscale Investments believes the product should have a smooth transition, it is optimistic that public advocacy as it is sponsoring can further get to the SEC and its pilots led by Gary Gensler.

Grayscale CEO Michael Sonnenshein has also threatened to sue the SEC should the outcome of the anticipated decision turn out to be ‘NO’. Speaking to Axios, Sonnenshein said his firm’s “..priority will always be advocating for investors, and this campaign embodies that commitment.”

In a massive consensus move, the SEC approved a number of Bitcoin futures Exchange Traded Fund products starting with ProShares last year. The logic remains that if the SEC can grant approval for a futures product, it should be able to do the same for a spot product as the industry has continued to allay some of the regulator’s primary fears.

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SEC again delays decision on Grayscale’s Bitcoin ETF

by Cointelegraph

The United States Securities and Exchange Commission (SEC) has once again delayed its ruling on whether to approve Grayscale’s application for a Bitcoin (BTC) exchange-traded fund (ETF), citing familiar concerns around manipulation, liquidity and transparency. 

In a notice published Friday afternoon, the SEC expressed concerns about how the digital asset manager intends to convert its Grayscale Bitcoin Trust (GBTC) into a spot ETF. Namely, the regulator wasn’t convinced that Grayscale’s proposal was designed to prevent alleged fraud and manipulation in the Bitcoin market. The SEC has invited the public to comment on these issues, giving interested parties 21 days to respond in writing.

As Cointelegraph reported, Grayscale’s initial application to convert shares of GBTC into a spot Bitcoin ETF was submitted to the SEC in October. Less than two months later, the securities regulator announced that it was postponing its decision on Grayscale’s application and a similar proposal put forward by Bitwise.

Grayscale is the world’s largest digital asset manager with $36.5 billion in assets under management as of Feb. 4. Its GBTC product accounts for over 71% of its total assets. 

Related: Canadian Bitcoin ETF sees its third-biggest daily inflow ever

While the SEC has been hesitant to approve a spot Bitcoin ETF, the regulator has been much more receptive to a futures-linked product. In October, the ProShares Bitcoin Strategy ETF became the first Bitcoin futures fund to be approved in the United States. Shortly thereafter, the SEC approved a pair of Bitcoin-linked Strategy ETFs from Valkyrie and VanEck.