Grayscale edges closer to fund conversion as it meets SEC's cash rule

Grayscale has filed an amended S-3 filing with the US SEC as it positions itself for approval of the conversion of its Bitcoin Trust into an exchange-traded fund (ETF). The revised filing fulfils the SEC's demands for cash redemptions compared to in-kind transactions. The filing reads in part:

Grayscale's move follows its peers that have submitted to the SEC's demands for cash redemptions in their spot Bitcoin ETF filings. Last month, BlackRock updated its spot ETF to address the regulator’s concerns.

Under the cash model, ETFs will exchange ETF shares for cash. The model differs from the traditional model, where market makers exchange the underlying assets for ETF shares. Consequently, the SEC has favoured the cash model amid concerns over market risks and manipulation. Controversially, Grayscale's amended filing eliminates airdrops and blockchain forks from its list of beneficial products.

A big step towards a spot Bitcoin ETF approval

Analysts believe Grayscale's amended filing preempts the SEC's eventual approval of a spot Bitcoin ETF. Bloomberg's Senior ETF analyst, Eric Balchunas, says that the filing marks the final step of converting Grayscale's Bitcoin Trust (GBTC) to spot ETF.

However, Bryan Armour, ETF analyst at Morningstar believes the cash redemption model would make it expensive for spot ETF investors because of higher transaction costs.

Meanwhile, investors have been positioning themselves for the approval of the first spot Bitcoin ETF in 2024. Grayscale's GBTC discount rate has been narrowing, indicating an increased appetite for GBTC shares as the market grows optimistic about the fund conversion. Bitcoin (BTC) has also been rising steadily, hitting a high of above $44,000 before cooling off slightly.