Grayscale Revamps GBTC Agreement in Preparation for Bitcoin ETF Conversion

Grayscale, the company behind the Grayscale Bitcoin Trust (GBTC), has updated its trust agreement.

These modifications, the first since 2018, are intended to enhance GBTC’s framework in preparation for a potential transition to a spot Bitcoin exchange-traded fund (ETF) and create a fairer competition with other contenders, including the prominent asset management firm BlackRock.

Key Changes to the GBTC Structure

Grayscale’s changes, subject to approval, include a shift in the management fee collection method from monthly to daily.

According to a company spokesperson, this structural change is separate from potential fee reductions yet to be finalized. Currently, Grayscale imposes a 2% management fee on GBTC, notably higher than the 0.7%-1% typical range for firms awaiting spot Bitcoin ETF approvals.

The second major update involves mixing assets in omnibus accounts, a move anticipated to streamline the creation and redemption of shares. This process is fundamental to the functioning of ETFs and is a feature of Coinbase Custody’s service, already adopted by other ETF aspirants, including BlackRock’s iShares product.

A representative from Grayscale stated that these alterations align with normal business operations and that GBTC is prepared to transition to a spot Bitcoin ETF on NYSE Arca, subject to requisite regulatory approvals.

No Additional Cost to Shareholders

Grayscale assures that these amendments will not incur extra costs for its shareholders. They are also encouraged to vote in favor of the propositions, which could bring operational efficiencies, although optional for a possible GBTC spot ETF conversion. Shareholders have 20 days from the filing date to vote on the proposals.

Possible drawbacks include increased costs and more frequent fee payments. A slight risk is associated with asset blending if they are held in omnibus accounts. However, most assets will still be kept in separate custody accounts.

In related news, BlackRock recently met with the SEC’s Trading and Markets division, proposing a revised model for redemption flow.

Looks like BlackRock met with the SEC’s Trading & Markets division again yesterday and gave presented them with a “revised” in-kind model design based on Staff’s comments at their 11/20 meeting.. h/t @btcNLNico here’s full doc:

— Eric Balchunas (@EricBalchunas) November 29, 2023

The division, responsible for approving or denying ETF applications, had been highlighted in an “educational” video by SEC Chair Gary Gensler, explaining its role. James Seyffart, a Bloomberg ETF analyst, noted that this division has historically denied all spot Bitcoin ETF applications.

The race for ETF approval is intensifying, with Pando being the latest to file an application on November 29. Analysts maintain a 90% probability of approval for a spot Bitcoin ETF by January, signaling a potentially transformative period ahead in the crypto space.

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2023-11-30 16:22