What does GBTC's conversion into a spot ETF actually mean?
TechFlow Selected TechFlow Selected
What does GBTC's conversion into a spot ETF actually mean?
GBTC will retain the same stock ticker (GBTC) and the same CUSIP, and investors will continue to be able to buy and sell GBTC shares at the public market price.
Navigating Web3 tides with focused insightsSource: Grayscale
Translation: BitpushNews Mary Liu
At Grayscale, we believe that U.S. regulatory approval for a spot bitcoin ETF is a matter of "when," not "if."
We remain focused on listing GBTC as a spot bitcoin ETF on NYSE Arca. While the timeline is inherently uncertain, looking ahead, we sat down with Grayscale’s Chief Legal Officer Craig Salm and Chief Financial Officer Edward McGee to answer some common investor and market participant questions about the process and implications of listing products like GBTC on an exchange, including how the listing of GBTC on NYSE Arca would work and what it would mean for investors if GBTC trades as an ETF.
Q: First, can you give us an overview of how ETFs generally work?
A: An ETF is an investment product whose shares trade on national securities exchanges—such as NYSE Arca, Nasdaq, or CBOE. ETFs are able to both create and redeem shares, which is designed to allow ETF shares to trade at the value of their underlying assets or holdings, commonly referred to as net asset value (NAV).
Market participants known as authorized participants (APs)—primarily broker-dealers such as banks or trading firms holding certain registration credentials—are incentivized to create ETF shares when they trade above the ETF's NAV, or to redeem ETF shares when they trade below the ETF's NAV.
APs are typically the only market participants who can engage in these transactions with the ETF. These creation and redemption transactions allow APs to profit through this arbitrage mechanism, which serves as an incentive to keep the ETF tracking the value of its underlying assets. An ETF that closely tracks its NAV can also encourage non-AP brokers and investors to buy and sell shares in the open market without needing to create or redeem shares. The higher the liquidity of ETF shares—or the greater the free float and trading volume—the less reliance there is on creation and redemption activity.
Q: How does GBTC operate today?
A: GBTC is an investment trust that holds more than 3% of the total circulating supply of bitcoin. As of November 29, 2023, each share of GBTC is backed by 0.0008968 BTC. GBTC owns nothing other than bitcoin, does not use leverage, and does not utilize derivatives such as bitcoin futures contracts. The underlying bitcoin tokens are stored in secure offline storage. Grayscale oversees the day-to-day management of GBTC, including managing custody relationships, communications with regulators, tax reporting, financial statements, and other requirements for publicly traded investment vehicles.
Historically, GBTC shares have been issued through a private placement process exempt from registration under the Securities Act of 1933. As a result, these shares were initially available only to qualified investors and were subject to holding periods under Rule 144; GBTC shares are also not redeemable. To provide liquidity, GBTC began trading publicly on the OTCQX market in mid-2015. Since then, any investor with access to public markets has been able to buy and sell freely tradable GBTC shares, allowing them exposure to bitcoin within their investment accounts.
However, due to Rule 144, newly created shares must undergo a holding period, so if GBTC shares trade at a premium to GBTC’s NAV on OTCQX, APs cannot immediately create additional shares to add to the market and bring the price back into line with GBTC’s NAV. Conversely, because GBTC also does not offer a redemption program, if GBTC shares trade at a discount to GBTC’s NAV, APs cannot redeem shares to remove them from the market and realign the price with GBTC’s NAV. Therefore, GBTC cannot rely on the inherent arbitrage mechanism found in ETFs as described earlier. GBTC shares can—and have—traded at premiums and discounts relative to their NAV.
The innovation of the ETF structure lies in its built-in arbitrage mechanism, which continuously creates or redeems shares to address premiums and discounts.
Importantly, under the ETF model, GBTC shares are expected to track the price of bitcoin much more closely, meaning any premium or discount in GBTC’s share price is expected to disappear. As of November 29, 2023, GBTC had $23.4 billion in assets under management and was trading at an 8.09% discount, or $1.89 billion. This means that assuming the current discount disappears, once listed on NYSE Arca as an ETF, the arbitrage mechanism would unlock approximately $1.89 billion in value for investors.
Q: What happens to GBTC if the SEC grants the necessary regulatory approvals to allow a spot bitcoin ETF in the U.S. market?
A: The creation of GBTC shares will be registered with the SEC via a registration statement on Form S-3 under the Securities Act of 1933. Redemption of GBTC shares is expected to occur pursuant to Regulation M exemptions previously granted by the SEC for products with similar characteristics. This will provide GBTC with the necessary approvals for simultaneous creation and redemption, creating arbitrage opportunities whenever there is a premium or discount between GBTC’s share price and its NAV, enabling GBTC to track the value of its underlying asset—bitcoin—more closely. Once the SEC approves NYSE Arca’s 19b-4 rule change application, GBTC will also transition from OTCQX to NYSE Arca.
GBTC is already prepared to operate as an ETF. Upon receiving appropriate regulatory approvals, Grayscale will immediately work with our partners to list GBTC on NYSE Arca.
Q: If the SEC approves a spot bitcoin ETF and allows GBTC to list on NYSE Arca, what do GBTC investors need to do?
A: GBTC investors do not need to take any action. When investors view their GBTC holdings after listing on NYSE Arca, they will simply see those shares listed on NYSE Arca rather than quoted on OTCQX. GBTC will retain the same ticker symbol (GBTC) and the same CUSIP, and investors will continue to be able to buy and sell GBTC shares at prevailing market prices.
Q: Are there any tax implications I should be aware of when GBTC upgrades to NYSE Arca?
A: No. The listing of GBTC on NYSE Arca will not constitute a taxable event.
Q: Is there a timeline for when GBTC will be approved to list on NYSE Arca?
A: Unfortunately, no. Although the D.C. Circuit Court ruled in favor of Grayscale in August 2023 in litigation against the SEC, vacating the SEC’s denial of NYSE’s 19b-4 application to list GBTC on NYSE Arca, this remains an unprecedented situation and the timeline is inherently uncertain. The Grayscale team remains committed to constructive engagement with the SEC to list GBTC on NYSE Arca and will continue to provide timely updates as more information becomes available.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
比推 BitpushNews
