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The recent federal judge’s rulings overturning the SEC’s rejection of Grayscale’s application to convert its Bitcoin Trust (GBTC) into an ETF have indeed increased the likelihood of a spot Bitcoin ETF approval by the SEC.
The judge’s decision highlighted the SEC’s failure to provide a clear rationale for its rejection, signaling a potential shift in the regulatory stance.
Many analysts and experts now believe that a spot Bitcoin ETF could be approved by the SEC in the near future, with some even speculating that it could happen before the end of the year. Bloomberg analysts have estimated a 75% chance of a spot Bitcoin ETF approval in 2023.
The narrowing of discounts for Grayscale’s Bitcoin and Ethereum trusts is indicative of growing investor interest in these products. Previously, these trusts were trading at significant prices to their net asset values (NAV), but those discounts have considerably reduced in recent months. This reduction suggests that investors see Grayscale’s trusts as attractive avenues for investing in Bitcoin and Ethereum.
As the discounts narrow further, it may attract more investors to Grayscale’s trusts, potentially driving up the prices of the shares. Overall, these developments point to a positive sentiment in the crypto market and growing confidence in Grayscale’s products as investment vehicles for digital assets.
Notably, investors may soon find themselves at a crossroads with the increasing likelihood of a Bitcoin ETF approval. They will need to decide between investing in GBTC and waiting for the potential approval of the ETF, which could lead to the disappearance of the discount, or taking a chance on Grayscale’s Ethereum Trust (ETHE).
Potential Approval of Bitcoin ETF Could Significantly Impact Crypto Market, with Grayscale’s Ethereum ETFs Also in Focus
The potential approval of a spot Bitcoin ETF represents a significant milestone for the cryptocurrency industry. It would offer U.S. investors a more conventional avenue to invest in Bitcoin, potentially leading to a surge in demand for the cryptocurrency and subsequently driving up its price.
In the long run, once a Bitcoin ETF is approved, the discount on GBTC is expected to narrow significantly, as open-ended ETFs tend to trade very close to their Net Asset Value (NAV). This could result in significant gains for investors who choose to hold GBTC until that point.
Additionally, broader recognition and acceptance of Bitcoin could further contribute to potential gains for investors. This dynamic adds an interesting layer of consideration for investors as they navigate their investment choices in the evolving crypto market.
However, the more significant opportunity could be Grayscale’s Ethereum Trust (ETHE).
According to Coindesk analyst Alex Tapscott, that
“My view is if a U.S. spot bitcoin ETF gets approved, there should be little argument for holding up a spot ether ETF. And Grayscale itself has said it plans to convert ETHE and other products to ETFs. I wouldn’t hold your breath when it comes to SOL, ATOM, or any other smaller crypto asset, but we have first-hand knowledge that ETH ETFs work. ”
He also added that:
“In fact, ethereum ETFs launched within weeks of the first Bitcoin ETF. Regulators in Canada were comfortable with the product because there is a regulated futures market for ETH, allowing market makers to hedge risk while creating and redeeming units. I suspect that following a BTC approval, an ETH approval would not be far behind. ETHE’s discount is greater than GBTC’s, meaning a far greater arbitrage opportunity. Also, ETH markets are less liquid than BTC, so the incremental buying from an ETF could have a more material impact on price. And, in my view, ETH has a better upside as the leading platform for Web3 development.”
Grayscale Prevails in Legal Battle with SEC Over Bitcoin ETF Conversion, Boosting GBTC Shares
Grayscale’s legal battle with the SEC stemmed from the agency’s rejection of their application to convert GBTC into a Bitcoin spot ETF. The SEC’s primary concern was the risk of market manipulation, a contention that Grayscale vehemently contested, leading to their lawsuit against the SEC. They argued that the same regulatory standards applied to Bitcoin futures ETFs should also be extended to Bitcoin spot ETFs.
On August 29, 2023, the U.S. Court of Appeals for the District of Columbia Circuit unanimously sided with Grayscale, deeming the SEC’s decision as “arbitrary and capricious.” This ruling invalidated the SEC’s initial denial and set a new precedent in the cryptocurrency investment landscape.
Following the court’s decision, trading activity around GBTC experienced a surge as investors anticipated a reduction in its discount relative to Bitcoin’s spot price. Initially valued at $17.58, GBTC shares rose to a high of $20.56, marking the highest point since Bitcoin’s value reached $31,000 in July 2023. This 17% increase in share price reduced the discount to net asset value (NAV) from 25% to 17%.
The Grayscale Bitcoin Trust (GBTC) is a nearly $14 billion market cap product that holds significant influence in the realm of crypto investing. While for more than two years, the fund traded at an increasingly widening discount to the value of the bitcoin it holds, recent weeks have witnessed a significant turnaround, providing rewards for investors.
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