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Grayscale has recently renewed the request for a Bitcoin ETF spot following the resignation of Barry Silbert from the board of directors.
We would like to remind you that Mark Shifke, Chief Financial Officer of Digital Currency Group, has been appointed as Chairman of the Board of Directors of Grayscale, replacing Silbert.
This change has resulted in the submission of a new document to the SEC, indicating that Grayscale has complied with the cash-only creation model imposed by the regulator. Let’s see all the details below.
Summary
Barry Silbert leaves Grayscale: changes to the Bitcoin ETF
As anticipated, cryptocurrency manager Grayscale has submitted an updated version of the S-3 document to the United States Securities and Exchange Commission.
This coincided with the announcement of Barry Silbert’s resignation as CEO of the parent company Digital Currency Group from the board of directors of Grayscale.
Some observers of the cryptocurrency market believe that Silbert’s exit could significantly increase the chances of a successful conversion of the Grayscale Bitcoin Trust (GBTC) into a spot ETF on Bitcoin.
Which is currently awaiting approval from the SEC.
Ramah Luwalia, CEO of Lumida Wealth, suggests that Silbert’s resignation may have been undertaken to improve the prospects of ETF approval, particularly due to the ongoing SEC investigation into Silbert and DCG.
Even Adam Cochran, partner at crypto venture capital firm Cinneamhain Ventures, speculates that Silbert’s decision to resign may have been the result of a pre-existing agreement between Grayscale and the SEC.
Specifically agreed upon before the approval of the conversion request.
And there it is, this step down is for sure an agreement for Barry to be out for Grayscale to join the ETF ranks.
— Adam Cochran (adamscochran.eth) (@adamscochran) December 26, 2023
Glad I loaded up on GBTC and ETHE with the higher discount today. 🫡 https://t.co/89G2QVOAEJ
Silbert’s resignation was officially announced through an 8-K filing with the SEC on December 26, with the announcement that DCG’s Chief Financial Officer, Mark Shifke, would take Silbert’s place as Chairman of the Board of Grayscale.
The debate on Bitcoin ETFs: the liquidity creation model challenges conventions
In addition to Silbert’s resignation, the most significant aspect of the modified version of the S-3 document was the recognition that Grayscale has accepted a liquidity creation model.
According to Bloomberg’s senior ETF analyst, Eric Balchunas, this development represents a significant point of agreement.
This is because cash creations, compared to natural ones, have been a constant source of conflict between asset managers interested in launching a Bitcoin spot ETF and the SEC.
In fact, most equity and commodity-based ETFs use the in-kind model, allowing fund market participants to directly manage the asset in the fund.
The liquidity creation model, instead, implies that new shares of a spot Bitcoin ETF can be created or redeemed only through cash transactions.
The SEC’s decision to limit the ability to directly trade with Bitcoin to broker-dealers has been interpreted as an attempt to improve the traceability of Bitcoin transfers from exchanges and mitigate potential risks related to anti-money laundering or compliance with “Know Your Customer” (KYC) regulations.
Scott Johnsson, managing partner at VB Capital, emphasized that, despite the SEC claiming to want to protect investors, the liquidity creation model could pose a greater risk for those seeking exposure to Bitcoin through a spot ETF.
Johnsson has indeed commented as follows:
“Despite all the other spot commodity ETFs operating with physical models, this one must be done in a new way through cash and who knows if it will work.”
The possible approval of the Spot ETF and expert considerations
The price of BTC has experienced a significant increase throughout 2023, fueling investors’ anticipation for the approval of the first US Bitcoin spot exchange-traded fund (ETF).
This development is widely considered a significant milestone for investors in the world of cryptocurrencies. In early December, BTC surpassed $44,000, reaching levels not seen since April 2022.
The discussions between the United States Securities and Exchange Commission (SEC) and asset managers aspiring to list Bitcoin ETFs have focused on technical details, fueling hopes of an imminent approval according to some industry experts.
Bryan Armour, Director of Passive Strategies Research for Morningstar North America, highlighted that for ETF investors, the approval would represent the best product on the market, emphasizing that the current options have several flaws.
If approved, Armor expects a “block approval” with multiple ETF quotes on the same day. It explained that this could happen because most issuers follow similar approaches in submitting requests.
Armour has noticed positive signals indicating a more serious approach from the SEC towards the latest documents presented.
It has also expressed a growing optimism regarding the Bitcoin ETF. However, it has warned that, despite approval, the price of Bitcoin could undergo variations due to the selling of investors eager to cash in their profits.
Ben Smith, founder of Cove Financial Planning and certified financial planner, emphasized the importance for investors to carefully assess their risk tolerance and objectives before investing.
This is because the approval of the Spot BTC ETF could make the asset class more accessible to the public.