Tag: gbtc

Grayscale's Strategic Shift: Aiming for Bitcoin Spot ETF with Cash Redemption Model

Grayscale Investments has amended its S-3 filing with the U.S. Securities and Exchange Commission (SEC). This move is aimed at transitioning the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin Exchange-Traded Fund (ETF). Notably, the amendment follows the resignation of Barry Silbert as the chairman of Grayscale, marking a new chapter in the company’s direction​​​​.

Regulatory Compliance and Strategic Positioning

Grayscale’s amendment reflects a compliance with the SEC’s guidelines, notably pivoting to accept only cash orders. This decision is not just a mere compliance tactic; it signifies a strategic shift. Grayscale is positioning itself to compete with significant players like BlackRock in the ETF market. This move is especially crucial as Grayscale prepares for a significant approval deadline in January. The company is adapting its structure, transitioning from a monthly to a daily fee structure and simplifying the share creation and redemption process, indicating readiness to make a substantial impact in the ETF arena​​.

The Cash Creation Model

A critical aspect of Grayscale’s amended S-3 filing is the adoption of a cash creation model. This model means that new shares in a spot Bitcoin ETF can only be created or redeemed through cash transactions, contrasting with the in-kind model used by most stock and commodity-based ETFs, where fund market participants directly handle the asset in the fund. The shift to a cash creation model has been a significant point of contention between asset managers aiming to launch a spot Bitcoin ETF and the SEC. This move is seen as Grayscale “finally surrendering” to the cash creation model, a significant deviation from its previous stance​​​​.

The SEC’s preference for the cash creation model over direct dealings with Bitcoin is understood as an attempt to better monitor Bitcoin movements from exchanges and mitigate risks related to anti-money laundering or Know Your Customer compliance. This preference underlines the regulatory challenges faced by digital asset managers in navigating the complex landscape of financial regulations. The shift to a cash redemption model is expected to have profound implications on the cryptocurrency market, potentially challenging the profitable model of crypto exchanges and altering the financial landscape. Grayscale’s move could set a precedent for other digital asset managers in navigating regulatory challenges​​​​.

Genesis Global Capital Moves to Liquidate $1.6 Billion in Grayscale Trusts Amid Bankruptcy

Genesis Global Capital, the crypto lending firm currently under bankruptcy proceedings, has made a significant move by requesting permission from the U.S. Bankruptcy Court in the Southern District of New York to liquidate its holdings in Grayscale’s Bitcoin Trust (GBTC), Ethereum Trust (ETHE), and Ethereum Classic Trust (ETCG), with the assets collectively valued at approximately $1.6 billion. This request is part of Genesis’ broader strategy to maximize the funds available for distribution to creditors amidst the potential fluctuations in the prices of the underlying assets​​​​​​.

The assets targeted for liquidation include around $1.4 billion in GBTC shares, $165 million in ETHE shares, and $38 million in ETCG shares. Genesis has underscored the urgency of gaining approval for the asset sale to mitigate the risks associated with price volatility in the cryptocurrency market and to facilitate timely distributions to creditors​​​​​​.

In addition to seeking the sale of these trust assets, Genesis is also aiming to reclaim legal ownership of 31,180,804 additional shares, valued at about $1.2 billion, that were pledged to Gemini but never transferred. This matter is currently pending resolution in court. These shares were initially pledged as collateral by Genesis to Gemini for the Gemini Earn program​​.

Genesis’ request for liquidation comes after the firm reached an agreement with the U.S. Securities and Exchange Commission (SEC) to settle a lawsuit concerning the operation of the Gemini Earn program. As part of the settlement, Genesis agreed to pay a $21 million fine from any remaining funds after the bankruptcy process is concluded. This settlement aims to resolve the SEC’s claims and allows Genesis to focus on maximizing returns for its creditors without the burden of protracted litigation​​.

The motion for asset liquidation is scheduled to be heard at an upcoming hearing on February 8, highlighting Genesis’ intent to expedite the process amid ongoing challenges. This strategic liquidation effort, particularly in light of the recent conversion of GBTC to a spot Bitcoin ETF, which permits the redemption of shares in cash, marks a pivotal step in Genesis’ bankruptcy proceedings and its efforts to resolve its financial obligations​​.

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