Apr. 22, 2022
With a total market capitalization in the range of $2 trillion, growing adoption amongst both institutional and retail2 market participants, and the preponderance of exchanges, platforms, protocols, and products offering direct and indirect exposure to the asset class, it is apparent that cryptocurrencies and digital assets are an increasingly important component of the financial markets landscape. Investors seeking exposure to digital assets, such as Bitcoin, can obtain it directly on a cryptocurrency exchange or platform or indirectly through another financial instrument. Though direct ownership may meet the needs of certain Bitcoin investors, others would benefit from the familiarity, accessibility and convenience of acquiring indirect exposure via a spot Bitcoin ETP. Such products have been approved for listing in other jurisdictions such as Canada, Europe and Brazil, but to the detriment of domestic investors, none has been approved in the US to date. GBTC is extremely popular with investors - it has been reported that over 850,000 investors hold GBTC and that as of a recent date GBTC held approximately 3.4% of outstanding Bitcoins. Its shares are registered under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and it is subject to public reporting requirements under Section 13 of the Exchange Act. However, its accessibility is limited by its unlisted status, as it can only be purchased by an accredited investor in a private placement or else in an exempt secondary transaction on an over-the-counter marketplace. Additionally, its usefulness as a tracking investment for Bitcoin has been undermined by periodic dislocations from the value of its underlying holdings less its expenses (i.e., its net-asset value, or "NAV"). GBTC has traded at substantial premiums or discounts which have reached as high as 142% and as low as 79% as a percentage of NAV. These dislocations occur, and persist, because the primary market-based mechanic which links the price of an ETP to its NAV, a continuous creation and redemption program pursuant to which freely tradable shares can be issued or redeemed, is unavailable to GBTC as an unlisted security. It is apparent that U.S. investors would benefit from the approval of GBTC's listing and conversion to an ETP as it will become both more widely accessible and a more functional and efficient equivalent to direct ownership of Bitcoin. Thanks Jeff Wallace