Feb. 11, 2022
Why Grayscale BTC should be granted a conversion from a Trust to a Spot ETF Because like all other commodity-based spot ETF’s (oil, gold, etc.) - BTC price movements in the spot market will match my GBTC ETF price. In 1978 my first job was a stockbroker with Paine Webber in Chicago. The revolutionary product at the time for me was the new IRA’s that started in 1976, but virtually ignored by the brokerage industry. IRA’s had a small $1,500 limit per person so I would explain to husband and wife how the after-tax benefits in a money-market fund yielding 10% or greater would beat any average returns in the stock market. I opened more accounts than any other broker in Paine Webber with this clearly defined messaging. Clients added the same amount each year and over time the IRA’s savings and after-tax benefits outperformed their other investments. Simple, transparent messaging that clients could understand within minutes is the reason why the Grayscale BTC fund should have a spot ETF. How do I explain this message? People ‘get’ ETF’s. It’s the largest portfolio tool for investors. It’s easy to understand that the BTC spot ETF follows the BTC price. People like and understand diversification. All ‘eggs in one basket’? Of course not. Having a little of each investment area makes sense. People hear about Bitcoin and crypto gains and volatility as a part of current news and they are curious if it makes sense for them to own. Current rules have severely limited their options: Few RIA’s recommend non-ETF options OTC stocks designed as trusts like GBTC are complex to understand, 2% fees are seen as too expensive related to ETF’s, (10-20X more) 30% discount due to the Closed-End fund style (I thought they were all done in the 90’s) looks terrible on a funds statement and begs the question, what’s wrong with this holding? I own GBTC in my IRA’s and my wife’s too. I own small amounts of Bitcoin that I had to purchase through an exchange. I will continue to hold BTC over the coming retirement years. Why is my IRA story from 1978 super-relevant to today’s SEC decision over GBTC? Congress passed IRA’s to encourage people to save for the long-term with the tax-savings incentive. They KNEW there was a coming crisis of seniors retiring without resources. But the puny amounts of $1,500 was too little to get the attention of the masses and few brokers at the time took their efforts from prime clients to deal with the small accounts. So the incentives were never enough. Once 401Ks came around decades later, then retirement savings began to boom. I see the Grayscale BTC spot ETF in a similar role as a portfolio diversification tool. 90% of the crypto world is outside the United States and several countries have already approved their own spot BTC ETF’s or ETP’s. However, investors who want to own spot BTC in the US are dis-incentivized by the SEC failure to approve an ETF despite 50+ million citizens holding cryptos. To own a BTC portfolio position without a spot ETF, investors have to use workarounds and derivatives, like MSTR, BITO, miners, etc. or GBTC at a 30% discount to the spot price. Here’s my rule: The SEC should be actively offering investors the spot BTC ETF that holds the underlying asset instead of encouraging risky derivatives and exchange workarounds which game the system rules. Grayscale growth over the years is a direct result of auditing their holdings tied to a commodity. The reason for the current 30% GBTC discount to market price is completely related to the derivative trading games that wouldn’t be possible if a spot ETF were in place. Here’s my criticism: If the SEC regularly approves 100’s of billions in investments in SPAC’s, inverse 3x ETFs, and other crazy derivatives, I’m surprised by the denial for years to BTC investors in the US stock market. Why can’t Fidelity and other trillion dollar fund managers with decades of experience not offer a spot BTC ETF backed by actual BTC when they have hundreds of other funds without any real demand compared to BTC? The ‘Efficient Market Hypothesis’ says that the price of a security should reflect all known information, unless in this case…the SEC is literally putting its hand on the scale by delay. The IRS treats BTC as a commodity. If I want to buy any other commodity ETF, it’s available and approved by the SEC with no purchasing limitations. GBTC represents the largest block of BTC customer holdings, it makes sense to allow the transfer to a spot ETF. Where the IRA of 1978 was too little to a factor in savings, I believe the BTC spot ETF will be a transformative portfolio decision for small investors that hold investments for a long time. I have no doubt that ‘when, not if’ the GBTC spot BTC ETF fund trades, it will be the largest fund of all the ETF’s in the market. And it’s so simple to offer GBTC clients like me a simple metric - BTC price movements in the spot market will match my GBTC ETF price. Signed, Thomas J Spartz