Published
4 months ago on
December 28, 2023
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Grayscale has filed an amended S-3 filing with the United States Securities and Exchange Commission following its surprising leadership shuffle and the departure of Barry Silbert.
The filing indicates that Grayscale has reached a compromise with the Securities and Exchange Commission, agreeing to adhere to the demand for cash-only creation and redemption.
Grayscale Files Amended Application
The amended S-3 filing was made following the departure of the CEO of Grayscale’s parent company, Digital Currency Group, Barry Silbert, from Grayscale’s board of directors. Industry watchers have speculated that Silbert’s departure from Grayscale’s board could significantly increase the odds of the firm successfully converting its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Some, such as the CEO of Lumida Wealth, Ramah Luwalia, have speculated that Silbert’s resignation was likely his own decision to improve the odds of an ETF approval, largely due to the SEC’s ongoing investigation into Silbert and DCG.
Others, such as Adam Cochran, partner at crypto venture capital firm Cinneamhain Ventures, speculated that Silbert’s decision to step down resulted from an agreement between the SEC and Grayscale. Grayscale announced Silbert’s departure in an 8-K filing with the Securities and Exchange Commission on the 26th of December.
Previous Revisions
Grayscale has made multiple revisions to its original 2018 filing. In November, the firm made two alterations, with the first one changing the fee collection method from a monthly to a daily structure. The second alteration suggested the modification of how assets are combined in an omnibus account that aims to streamline the creation and redemption of shares.
Analyst James Seyffart suggested that Grayscale had agreed to the SEC’s demand for cash-only orders in its amended filing as the asset manager looks to comply with SEC directives. Applicants for a spot Bitcoin ETF and the Securities and Exchange Commission have been locked in discussions around cash and in-kind approaches. Most stock and commodity-based ETFs operate on an in-kind model that enables market participants to handle the assets directly.
On the other hand, the cash-creation model preferred by the SEC restricts the creation or redemption of new shares in a spot Bitcoin ETF to cash transactions.
The SEC Stance
The SEC’s stance poses a considerable challenge for applicants, as highlighted by Finance Lawyer Scott Johnson, who stated that the amended S-3 filing by Grayscale shed light on the challenge arising from the SEC’s reluctance to approve amendments allowing in-kind processes. This comes despite the insistence of broker-dealers and exchanges that compliance is feasible.
“Grayscale’s amended S-3 gives a nice little background on the key sticking point for in-kind creation/redemption. The SEC promulgated rulemaking for digital asset safekeeping. Despite the fact that BDs and exchanges apparently believe they could comply with the rule and offer in-kind, the SEC will refuse to approve amendments to exchange rules that would allow this because they’re not convinced that it is possible to comply with their rules. And despite the SEC being tasked with investor protection, this results in..... less protection for investors via a wonderful new novel product.”
According to Johnson, the SEC’s stance, which is aimed at investor protection, results in reduced safeguards, as a novel in-cash approach introduces a new layer of uncertainty for investors. He further added,
“Gary has twisted the SEC’s crypto regime into a knot where it simultaneously allows and disallows its existence via some Rube Goldberg-ian mess, and courts are forced to intervene every so often to reconcile the stupidity. But rest assured, no guidance needed. All very clear.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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