Grayscale Investments, known for its Grayscale Bitcoin Trust (GBTC), is planning on filing an application to convert its flagship fund into a spot ETF early next week. Grayscale, which has been the dominant player in the digital asset space, is now looking to revamp its fund due to competition.
First Bitcoin Futures ETF Set to Trade Early Next Week, Adding More Competition for Grayscale
Last Friday, the Securities and Exchange Commission (SEC) approved the first ever Bitcoin futures ETF, which is set to trade on the New York Stock Exchange early next week. The move has been hailed as a “watershed moment” by many, where Bitcoin is finally solidifying its legitimacy as an asset class to Wall Street and mainstream investors.
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The ETF, managed by investment firm ProShares, will feature a low management fee of 0.95%, compared to Grayscale’s 2%. Another benefit that the new ETF provides is the lack of redemption periods – something that has plagued GBTC’s investors since its very inception.
Why Grayscale’s Potential Spot Bitcoin ETF May Outperform Futures ETFs
The Bitcoin-futures ETF is a step in the right direction in making cryptocurrencies more accessible for the everyday investor; however, many crypto investors have argued that the ETF’s utilization of derivative contracts, which are traded on the Chicago Mercantile Exchange (CME), would prove to be far inferior compared to a spot ETF holding actual Bitcoin.
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Contango, which is a phenomenon that occurs when futures prices are above expected future spot price, means that investors will lose out potential gains due to the Bitcoin futures contracts expiring higher than the cryptocurrency’s spot price. Joe Orsini, director of research at Eagle Brook Advisors, explained the following disadvantages in his Twitter thread:
Futures-based #bitcoin ETFs? Buyer Beware.
A thread on contango, using USO ETF (a futures-based ETF on crude oil) to compare performance of Spot WTI Crude, 1st-month Crude Futures, and a futures-based ETF.
— Joe Orsini, CFA (@JoeOrsini_) October 15, 2021
If approved, Grayscale’s spot Bitcoin ETF would be backed by actual Bitcoins, rather than derivatives that track the cryptocurrency’s price. Grayscale already has a significant portion of the world’s circulating Bitcoin supply.
Barry Silberts, the founder of Digital Currency Group and Grayscale Investments, took to Twitter to hint at upcoming changes for GBTC. He joked, “[f]riends don’t let friends buy and hold futures-based ETFs.” Though, there may be some truth behind the statement yet.
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