GBTC ETF Approved to List on NYSE Arca
GBTC’s transition into an ETF allows investors to gain exposure to Bitcoin without the hassle of managing cryptocurrency exchanges and wallets, although this fund does have drawbacks such as high management fees and security concerns.
GBTC shares represent a fraction of its underlying assets, and its NAV is updated daily to reflect changes in their value. This structure gives GBTC all of the advantages associated with traditional ETFs – transparency, disclosures, etc.
Grayscale’s GBTC Fund Changes to a Spot BTC ETF
Grayscale Investments, the world’s leading crypto asset manager*, announced that the Securities and Exchange Commission (SEC) has granted permission for it to list their Grayscale Bitcoin Trust on NYSE Arca. The fund will adopt ticker “GBTC”, with trading anticipated to commence by January 11. Existing shares of GBTC will continue trading OTCQX until such time as trading begins on NYSE Arca.
Investors in the United States have eagerly anticipated the debut of the first spot-based bitcoin ETF (GBTC ticker), boasting assets exceeding $28 billion. While investors should take note of any associated risks with their new ETF.
GBTC had long been mired in uncertainty, but finally made headway after winning a court victory against the SEC in August. That ruling required them to review their decision regarding GBTC’s conversion into an exchange-traded fund (ETF).
Converting ETFs will enable investors to purchase shares directly, bypassing third-party custodians. This will provide greater liquidity for the fund and improve retail investors’ experiences while eliminating fees charged by custodians.
Some investors have raised concerns over Grayscale ETF’s proposed fee structure. At present, GBTC charges an annual fee of 2% that is significantly higher than its competitors’ fees. Analysts at JPMorgan Chase & Co estimate that outflows could reach as much as $2.7 billion following conversion unless Grayscale lowers its fees post-conversion.
Grayscale’s law firm, Davis Polk, sent a letter to the SEC outlining these concerns by noting that market surveillance applies equally to spot ETFs as approved bitcoin futures ETFs and that segregated custody accounts would provide better tax treatment than single accounts for investors in GBTC.
Though approval of an ETF remains uncertain, many analysts remain hopeful about its impact on the cryptocurrency industry. BlackRock and Fidelity have both expressed interest in creating spot-based bitcoin ETFs as they create an easy, standardized format for investing without direct bitcoin exposure.
ETFs are a regulated investment vehicle
GBTC is an exchange-traded fund (ETF) designed to allow investors direct access to Bitcoin. Trading is conducted using traditional brokerage accounts, avoiding security risks associated with cryptocurrency exchanges and digital wallets that have been targeted by hackers in the past. Furthermore, its shares may qualify for tax-advantaged accounts such as 401(k)s or IRAs for tax efficiency; yet direct Bitcoin investment remains risky for some.
Futures-based ETFs track the price of Bitcoin at some point in time in the future; in contrast, GBTC aims to reflect its true value per share, although its shares sometimes trade at either a premium or discount compared to its net asset value (NAV). A premium signifies an overestimation of bitcoin’s real worth; conversely, discounts indicate undervaluation.
The difference between NAV and the GBTC share price indicates how much demand there is for its shares; when there is high demand, the price may exceed its NAV; this could be seen as both positive and warning signals that share price does not accurately represent its underlying assets.
Grayscale’s plans to upgrade GBTC from OTC Markets to NYSE Arca will enable it to more accurately track bitcoin’s price while simultaneously creating and redeeming shares, helping reduce discrepancies between share price and NAV.
Regulated investment vehicles such as GBTC are subject to securities regulations and must register with the Securities and Exchange Commission. Furthermore, their directors and officers must file financial reports with them which gives investors peace of mind that their assets are being safeguarded by this fund.
Contrasting with unregulated cryptocurrency exchanges, regulated investment vehicles are subject to oversight by federal and state regulators, less vulnerable to hacking or fraud attacks, and should therefore be selected by investors as the vehicle of choice for their bitcoin investments – this is particularly helpful for retail investors who may find navigating cryptocurrency exchanges more complex.
Spot BTC ETFs are a more liquid investment vehicle
Spot bitcoin ETFs will be among the first products available in the US market, but investors should be wary of potential risks associated with them. Spot ETFs require cash creations and redemptions which add costs associated with crossing bid-ask spreads and liquidity costs for trading purposes.
Spot bitcoin ETFs may suffer from limited depth and liquidity for large trades, reducing returns from buy-and-hold investors. Furthermore, their share prices will not accurately represent the true value of bitcoin as the price fluctuation may impact them differently from their net asset value (NAV) of the fund.
Grayscale Investments’ GBTC was one of the earliest and largest Bitcoin trusts until its recent conversion to an exchange-traded fund (ETF). Launched in 2013, it currently manages $28 billion in assets under management. Grayscale expects this process to begin on January 11 at NYSE Arca with shares automatically uplisted from OTC markets.
GBTC’s transition to a spot ETF is an encouraging development, yet does not address its core flaws. For instance, its holding of actual bitcoins makes retail investors uncomfortable and its share price does not accurately represent its underlying commodity’s worth.
The new GBTC ETF is anticipated to feature a much lower expense ratio than its predecessor due to not paying futures contracts and only covering costs related to its underlying asset. This makes the fund an appealing alternative for investors looking for exposure to bitcoin without going through an exchange to acquire and trade their coins directly.
Jeff Billingham of Chainalysis joins us in our podcast episode for more on the SEC approval of Spot Bitcoin ETFs which many are hailing as a landmark moment for crypto. If you want to hear more, subscribe on Spotify, Apple, or Audible!
Spot BTC ETFs are a more diversified investment vehicle
With the approval of spot bitcoin ETFs, investors will gain a regulated and simplified method for accessing bitcoin’s prices, potentially helping boost adoption while stabilizing its value and reducing risks associated with storing cryptocurrency assets on exchanges or wallets which are vulnerable to hackers. A spot BTC ETF may also improve market liquidity while helping price discovery by encouraging more institutions to join.
Investors will be able to trade shares of new ETFs on an exchange, with the fund custodian holding bitcoin on behalf of all shareholders. This should reduce costs for individual investors while still satisfying tax requirements; however, investors should remember that many funds may still be subject to taxes on capital gains or losses, so it will be important for them to carefully evaluate the fees associated with an ETF versus their immediate tax burden based on their goals and financial circumstances.
ETF approval could also help normalize bitcoin and eliminate any remaining stigma by engaging trusted financial services firms in its management. Furthermore, these ETFs could bring additional speculative opportunities and leveraged investment strategies, potentially increasing both gains and losses over time.
Even though ETFs provide diversification benefits, it is still best to invest in a diverse portfolio. Relying too heavily on one asset class increases risk due to volatility and liquidity considerations.
On January 11 on the OTCQX market, GBTC launched trading with more than $2 billion exchanged hands – the first SEC-approved ETF that holds spot bitcoin and largest in terms of assets under management. Unfortunately, high fees and taxes may prevent some investors from investing.
GBTC will transition to the NYSE Arca by 2024, marking a change to both its name and investment strategy that reflect its shift away from futures to spot bitcoin investments and align its fees more closely with those of standard ETFs which offer lower expenses than GBTC.