Feb. 20, 2022
Dear Sir or Madam, I am writing to seek the SEC’s approval of the conversion of Grayscale Bitcoin trust (GBTC). As a long term GBTC and experienced stock investor, I am not experiencing any protection by the SEC and is repeatedly disappointed by the SEC’s decisions to deny spot ETF and GBTC’s conversion to a spot ETF. In light of the current situation, I have already shifted any future Bitcoin exposure to direct exposure via Crypto Exchanges. I believe the SEC is making a huge mistake ignoring the investors’ requests and refusing to embrace the future. As the rest of the world embrace the idea of Bitcoin and the opportunities in spot products, The SEC’s action to deny all spot ETF application and GBTC conversion has once again damaged their own reputation and sending a very dangerous message to the investment community. Many are convinced that the decision to deny was always in place and that The SEC acts subjectively, instead of objectively based on investors’ requests, existing laws and guidelines. I hope that our opinions to the commission would be carefully considered, or else The SEC risks pushing conservative investors like myself to go for “more risky” direct exposure to Bitcoin and other digital assets. I have summarized some key bulletins below for your consideration: l GBTC is trading at 25% discount (and as low as 30%), it clearly no longer works and is essentially a “failed” product. The crypto market has matured and investors tend to buy crypto assets directly, reducing the demand for product like GBTC, which in turn widens the negative premium. GBTC has served its purpose as an early exchange traded product that allows investors to gain Bitcoin exposure via the traditional market. It is now a legacy product and need to be converted to a real spot ETF ASAP l Under its current structure, Grayscale is not able to restore the GBTC premium and early investors who thought they are more protected by gaining Bitcoin exposure via the traditional market suffers, instead of being protected. As negative premium continues to widen, value continues to get destroyed, exactly the opposite of investor protection l Conversion offers multiple benefits to investors, it allows GBTC to trade at fair price and track the underlying (Bitcoin) closely, a massive reduction in fee, and more importantly, encourage investors, both retail and institutions, to gain Bitcoin exposure via the traditional market, which is clearly in the interest of The SEC l Grayscale is the biggest and most experienced digital asset manager, which is self-explanatory l Multiple spot ETFs, ETPs have been approved in other markets and have been working smoothly and received positive feedback, more countries are giving the green light to similar spot products, the US risks lacking behind and playing catch up l Futures based ETF is approved, it is however more risky and complicated as derivative is involved, more costly to investors due to roll cost and naturally results in bigger tracking error l It makes little sense a more risky, more complicated and inferior derivative version of the product is approved when the base spot version is not l If The SEC truly wants to protect investors, they should approve the conversion, to encourage investors to gain Bitcoin exposure via the traditional market where the SEC has the power to regulate and control, instead of casting them out of the traditional market and force them to dive into the “Cryptoverse”, where many believed to be the “wild west” l Much more risky exchange traded products have been available to investors for decade, for example leveraged commodities/volatility/index ETFs/ETNs, some of them have blown up in the past and The SEC has not stopped these from getting listed on the market, this is a sign that the investors need less “protection” than the SEC is advertising and also showcase The SEC’s reluctance to embrace the idea of Bitcoin l On the institutional adoption perspective, some listed companies have already decided to go for the "Bitcoin on the balance sheet" approach. Should GBTC conversion happens, listed companies maybe more willing to "invest" into GBTC instead of direct Bitcoin exposure and it creates less trouble on an accounting and financial reporting perspective. The same could be said to other institutional investors like pension funds and endowments. It is well understood that the development of blockchain, Bitcoin, crypto and digit asset is inevitable. The SEC should be leading the world in this new era and embracing the tremendous opportunity. Refusal to adopt and acknowledge new technologies and ideas have historically proven to be extremely costly, and in this case, refusal to approve the conversion of GBTC and spot Bitcoin ETF would only results in loss of confidence and trust in The SEC and the system. And the only things The SEC could “gain” is weakening of their own regulatory power, weakening the position of the US as the dominant ETF hub and encouraging investors to seek “more risky” ways to gain their Bitcoin exposure, which again contradicts the "investor protection" argument. I would like to thank your time and attention, and I am looking forward to positive response from The SEC. Regards and thanks, Retail investor and former financial analyst