Grayscale’s SEC Hearing Gives New Hope For GBTC Investors
Grayscale’s SEC Hearing Gives New Hope For GBTC Investors
The SEC was in the hot seat on Tuesday as the Grayscale Bitcoin Trust brought their arguments for a spot bitcoin exchange-traded fund in front of U.S. judges. GBTC shares jumped during the hearing.
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Grayscale’s SEC Hearing Gives New Hope For GBTC Investors
Yesterday, the debacle over a spot bitcoin exchange-traded fund (ETF) reached U.S. courts, as the SEC was questioned by judges over the rejection of Grayscale’s application to convert its closed-end bitcoin trust, GBTC, into an open-ended ETF. During the hearing, the SEC cited concerns regarding manipulation in spot bitcoin markets, while Grayscale refuted the SEC’s reasoning, given the SEC’s prior approval of a futures bitcoin ETF in the fall of 2021.
This led to court judges questioning the SEC’s understanding of the relationship between the spot market and the futures market, with a court judge saying, “We haven’t seen any evidence that Grayscale's argument is flawed.”
In our view, the key point in the hearing was when the judges asked the SEC to explain why the Grayscale offer was rejected and followed up with a question as to whether manipulation of a futures-based ETF was possible. The SEC’s answer was that Grayscale did not provide enough data, which led to a response from judges suggesting that the data provided by futures-based bitcoin ETFs should be equally sufficient for spot ETF applicants.
The contents of the hearing were enough for the Senior Litigation Analysts at Bloomberg to change their probability of a successful Grayscale suit from 40% to 70% — an extremely noteworthy swing.
What’s next?
The expected timeline for a ruling on the case is expected to drag on into the later months of 2023, with Bloomberg Intelligence estimating a ruling somewhere in Q2 or Q3.
GBTC Price Action
Although the volume for GBTC was still relatively illiquid compared to historical numbers, yesterday was one of the highest trading volume days we’ve seen for GBTC in many months. As we’ve observed with many of bitcoin’s explosive market rallies in this bear market, it doesn't take much to push price in either direction with a major news story.
The court hearing served as a catalyst for the GBTC discount to shoot from -45% at the weekly opening to -34.5% today, an impressive move that saw shares of GBTC move +18.4%, while the price of spot bitcoin fell by 1.6% during the same time period.
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This massive outperformance while bitcoin traded lower is different from previous times when the discount closed due to market beta, as the illiquid nature of the over-the-counter GBTC market relative to the spot BTC market, often causes GBTC to serve as a more volatile derivative of bitcoin intra-day.
The rest of this article is open to paying members only. Here’s what’s behind the paywall 🔏:
How bitcoin returns compare to GBTC returns. ⚖️
The effect a spot bitcoin ETF approval might have on the bitcoin price. 🏷️
A potential timeline for a spot bitcoin ETF approval. ⏳
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