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Grayscale reaches GBTC agreement with Jane Street, Virtu ahead of SEC ruling

·Senior Reporter
·3-min read
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Grayscale announced a deal Monday with Wall Street trading firms Jane Street and Virtu Financial (VIRT) to close the discount on its Bitcoin Trust (GBTC-USD) following potential ETF conversion.

The agreement comes ahead of an expected decision on July 6 from the Securities and Exchange Commission on whether GBTC can convert from its current structure into an exchange-traded fund.

The deal would only be effective following the SEC's approval, but the agreements serve as another sign Grayscale is “operationally ready” for ETF status, according to the firm’s global head of ETFs, David LaValle.

“We’ve been considering a number of authorized participants, but Jane Street and Virtu have actually signed on the dotted line. It's a strong vote of confidence that the marketplace is ready for GBTC to become an ETF,” LaValle told Yahoo Finance.

'Unequivocally committed'

Since Grayscale submitted its application for ETF conversion in October 2021, the SEC has delayed approval three times.

Now, as part of the regulatory process, the regulator can no longer delay the application and must make a final decision on July 6.

On Monday morning, Grayscale’s chief executive officer Michael Sonnenshein noted to investors that the asset manager is "unequivocally committed to converting GBTC to an ETF."

Back in March, Sonnenshein said in an interview with Bloomberg that "all options are on the table" to get its bitcoin trust approved. Earlier this month, Grayscale announced it had hired Donald B. Verrilli, Jr., former Solicitor General of the United States under the Obama administration, as additional legal counsel and strategist for clinching the ETF conversion.

LaValle reiterated to Yahoo Finance that if the SEC doesn’t approve GBTC’s conversion, the firm is prepared to appeal the decision by suing the regulator.

Representation of cryptocurrency and Gayscale logo displayed on a phone screen are seen in this illustration photo taken in Poland on November 6, 2021. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
Representation of cryptocurrency and Gayscale logo displayed on a phone screen are seen in this illustration photo taken in Poland on November 6, 2021. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

The GBTC Discount

Shares of GBTC, which currently trade over-the-counter rather than on an exchange, trade at a 30% discount to the value of bitcoin held by the trust.

A critical element for eliminating the GBTC discount depends on “authorized participants” — in this case, Jane Street and Virtu — who agree to create and redeem shares on a continuous basis, an inherent part of operating an ETF.

In the long term, this discount isn’t ideal for investors who want exposure to bitcoin, but also want to accurately track bitcoin's value. Some investors, however, have seen the discount as a profit opportunity, given this discount could be eliminated upon GBTC’s conversion to an ETF.

More than 11,000 comments

Since Grayscale started a campaign early this year encouraging market participants to submit comments to the SEC on their decision, the SEC has received more than 11,000 comment letters.

Grayscale commissioned a report on these letters, which found 99.96% of those sent to the SEC supported ETF conversion.

Yet Eric Balchunas, a senior ETF analyst with Bloomberg, told Yahoo Finance he thinks there is little chance the SEC approves the Grayscale's ETF conversion by July 6, citing SEC chair Gary Gensler's repeated concerns that there needs to be more U.S. regulatory authority over the bitcoin market before approving a spot ETF.

"The odds are it gets rejected and then they sue the SEC. Get the popcorn ready," Balchunas added.

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