Grayscale, a cryptocurrency asset management firm, updated its S-3 filing with the U.S. Securities and Exchange Commission (SEC) on the same day Barry Silbert, CEO of its parent company Digital Currency Group (DCG), announced his resignation from Grayscale’s board.
Market analysts in the crypto sector believe Silbert’s departure might significantly boost the chances of Grayscale converting its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin Exchange-Traded Fund (ETF), a decision currently pending with the SEC. Ramah Luwalia, CEO of Lumida Wealth, suggests that Silbert likely resigned voluntarily to enhance the likelihood of the ETF’s approval, especially given the SEC’s ongoing investigation into Silbert and DCG.
Adam Cochran of Cinneamhain Ventures, a crypto venture capital firm, suspects that Silbert’s resignation was a prearranged decision between Grayscale and the SEC, anticipating the approval of the ETF conversion request. This change in leadership was confirmed in an 8-K filing to the SEC on December 26, stating that DCG’s CFO, Mark Shifke, would replace Silbert as Grayscale’s board chairman.
Another key point in Grayscale’s amended S-3 filing was its shift to a cash creation model for the ETF, as noted by Eric Balchunas, a senior ETF analyst at Bloomberg. This change from the typical in-kind creation model, where fund market participants directly handle the asset in the fund, to a cash-creation model means new shares in a spot Bitcoin ETF would be created or redeemed through cash transactions. This shift has been a contentious issue between asset managers and the SEC, as most stock and commodity-based ETFs operate on an in-kind model.
The SEC’s stance against broker-dealers directly handling Bitcoin is seen as a measure to better monitor Bitcoin transactions from exchanges and reduce risks related to anti-money laundering and Know Your Customer regulations.
Scott Johnsson, a general partner at VB Capital, pointed out that while the SEC aims to protect investors, the cash creation model for a spot Bitcoin ETF might pose greater risks for investors seeking Bitcoin exposure. Johnsson expressed concerns about the novel approach of using a cash model, contrasting it with the in-kind models used by other spot commodity ETFs, and questioned its effectiveness.
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