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TL;DR: GBT has trouble maintaining its BTC peg because various SEC rules preventing the market from operating correctly. Some people and companies have tried to

TL;DR: GBT has trouble maintaining its BTC peg because various SEC rules preventing the market from operating correctly. Some people and companies have tried to fix the peg but it's difficult with the 6 month lockup period and inability to redeem shares.

Animats 4y ago
No, they don't get to blame this on the SEC. As Morningstar points out, Grayscale has the power to make this right. It can redeem shares at NAV and simply return investors their cash or bitcoin. That is, if Grayscale really does care about crypto investors. Grayscale offered a redemption program before 2016. However, the SEC issued a cease and desist order because the repurchases took place at the same time the trust was issuing new shares, in violation of Regulation M. The situation is different now. Grayscale stopped issuing new shares in March 2021. That leaves the door open for it to pursue a redemption program and bring GBTC closer inline with the price of bitcoin.[1] The key concept here is that if you're an issuer, you usually can't buy and sell your own issued stuff. (FTX did a lot of that. It didn't end well.) But Greyscale is done issuing. They can now redeem their own fund shares if they want. Or just liquidate the whole fund and return the assets to the holders. If they actually have all the assets. [1] https://amycastor.com/2022/04/19/welcome-to-grayscales-hotel-california/ https://amycastor.com/2022/04/19/welcome-to-grayscales-hotel...
- vba616 4y ago
  >No, they don't get to blame this on the SEC. Then why are there ETFs anyway?
- seanhunter 4y ago
  Indeed. It’s perfectly possible for an ETF to have a creation/redemption mechanism that doesn’t violate any SEC rules. For example, here’s state street’s explanation of how this works[1] [1] https://www.ssga.com/au/en_gb/institutional/etfs/resources/education/how-etfs-are-created-and-redeemed https://www.ssga.com/au/en_gb/institutional/etfs/resources/e...
  - roncesvalles 4y ago
    Yes, normal ETFs create and destroy new shares on a daily basis. But my understanding is that GBTC for whatever reason isn't a normal ETF. It's a "grantor trust", which cannot be issuing and destroying units by the usual authorized participant mechanism to maintain price-NAV parity.
- olalonde 4y ago
  > The key concept here is that if you're an issuer, you usually can't buy and sell your own issued stuff. (FTX did a lot of that. It didn't end well.) I don't understand what the concern is here. Without an arbitrage mechanism, of course the peg is lost. As a counter-example, USDC allows both new issuances and redeems (it's not a trust but it's conceptually similar). ETFs also allow this mechanism to operate. FWIW, I don't know why GBT hasn't re-enabled redeems if they're now allowed to do so. I was just going from what I read in the article. PS: What ended badly at FTX is that they gambled with / stole customers' deposits, it's not really a comparable concept.
  - Animats 4y ago
    > I don't know why GBT hasn't re-enabled redeems if they're now allowed to do so. Because they'd have to pay out money. Money they might not have.
EdwardDiego 4y ago
If you need to change the existing rules to achieve a functional market, why are you even operating to begin with? That's like signing a massive import deal with Ferrero for Kinder Surprises, knowing that you'll make a killing as soon as the regulations are changed to allow you to bring them into the US. And then blaming regulators for not changing the rules that already existed to suit you. Anyone trying to blame this on regulators is lying to you.
- olalonde 4y ago
  FWIW, I think it's valid to blame regulators for banning Kinder Surprises.
  - EdwardDiego 4y ago
    But I would blame you if your business model was "take money from investors to buy Kinder Surprise, even though I can't import them legally"

Animats 4y ago

No, they don't get to blame this on the SEC. As Morningstar points out, Grayscale has the power to make this right. It can redeem shares at NAV and simply return investors their cash or bitcoin. That is, if Grayscale really does care about crypto investors. Grayscale offered a redemption program before 2016. However, the SEC issued a cease and desist order because the repurchases took place at the same time the trust was issuing new shares, in violation of Regulation M. The situation is different now. Grayscale stopped issuing new shares in March 2021. That leaves the door open for it to pursue a redemption program and bring GBTC closer inline with the price of bitcoin.[1] The key concept here is that if you're an issuer, you usually can't buy and sell your own issued stuff. (FTX did a lot of that. It didn't end well.) But Greyscale is done issuing. They can now redeem their own fund shares if they want. Or just liquidate the whole fund and return the assets to the holders. If they actually have all the assets. [1] https://amycastor.com/2022/04/19/welcome-to-grayscales-hotel-california/ https://amycastor.com/2022/04/19/welcome-to-grayscales-hotel...

vba616 4y ago
>No, they don't get to blame this on the SEC. Then why are there ETFs anyway?
seanhunter 4y ago
Indeed. It’s perfectly possible for an ETF to have a creation/redemption mechanism that doesn’t violate any SEC rules. For example, here’s state street’s explanation of how this works[1] [1] https://www.ssga.com/au/en_gb/institutional/etfs/resources/education/how-etfs-are-created-and-redeemed https://www.ssga.com/au/en_gb/institutional/etfs/resources/e...
- roncesvalles 4y ago
  Yes, normal ETFs create and destroy new shares on a daily basis. But my understanding is that GBTC for whatever reason isn't a normal ETF. It's a "grantor trust", which cannot be issuing and destroying units by the usual authorized participant mechanism to maintain price-NAV parity.
olalonde 4y ago
> The key concept here is that if you're an issuer, you usually can't buy and sell your own issued stuff. (FTX did a lot of that. It didn't end well.) I don't understand what the concern is here. Without an arbitrage mechanism, of course the peg is lost. As a counter-example, USDC allows both new issuances and redeems (it's not a trust but it's conceptually similar). ETFs also allow this mechanism to operate. FWIW, I don't know why GBT hasn't re-enabled redeems if they're now allowed to do so. I was just going from what I read in the article. PS: What ended badly at FTX is that they gambled with / stole customers' deposits, it's not really a comparable concept.
- Animats 4y ago
  > I don't know why GBT hasn't re-enabled redeems if they're now allowed to do so. Because they'd have to pay out money. Money they might not have.

EdwardDiego 4y ago

If you need to change the existing rules to achieve a functional market, why are you even operating to begin with? That's like signing a massive import deal with Ferrero for Kinder Surprises, knowing that you'll make a killing as soon as the regulations are changed to allow you to bring them into the US. And then blaming regulators for not changing the rules that already existed to suit you. Anyone trying to blame this on regulators is lying to you.

olalonde 4y ago
FWIW, I think it's valid to blame regulators for banning Kinder Surprises.
- EdwardDiego 4y ago
  But I would blame you if your business model was "take money from investors to buy Kinder Surprise, even though I can't import them legally"