Grayscale Investments’ Cash Creation Model for Spot Bitcoin ETF
Grayscale Investments has filed an amendment to its registration statement for Grayscale Bitcoin Trust, outlining its plan to adopt the cash creation method for its proposed spot bitcoin exchange-traded fund (ETF). The crypto asset manager’s filing with the U.S. Securities and Exchange Commission (SEC) warns that this novel product could be impacted by operational inefficiencies.
Details of the Filing
The filing states that the trust is currently accepting cash orders but is unable to create and redeem shares via in-kind transactions with authorized participants. It also acknowledges the lack of regulatory guidance on bitcoin compliance in relation to federal securities laws.
SEC’s Decision on Cash Creation Model
The SEC initially rejected Grayscale’s filing for a spot bitcoin ETF but was instructed by the court to reassess its decision. The agency reportedly insisted on the use of the cash creation model, which sparked criticism from various ETF applicants, including Grayscale and Blackrock.
Potential Adverse Consequences
Grayscale highlighted the potential adverse consequences of solely employing cash creations and redemptions for spot commodity exchange-traded products. The company believes that in-kind orders are generally more efficient and less costly, with fewer operational risks. The inability to facilitate in-kind creations and redemptions could result in the exchange-traded product arbitrage mechanism failing to function efficiently, leading to potential premiums or discounts to the NAV per Share.
Recent Developments
Barry Silbert has resigned from Grayscale’s board of directors, and the SEC reportedly set a deadline of December 29 for amended filings for spot bitcoin ETF applicants.
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