Crypto asset manager Grayscale lodged an amended S-3 filing with the United States securities regulator on the same day Barry Silbert — the CEO of its parent company Digital Currency Group — announced his resignation from Grayscale’s board of directors.
Some crypto market commentators speculate that Silbert’s departure could significantly increase the odds that Grayscale will successfully convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF, currently awaiting a decision from the Securities and Exchange Commission.
Barry's resignation was @Sonnenshein's X-Mas gift.
— Ram Ahluwalia CFA, Lumida (@ramahluwalia) December 26, 2023
What to make of @bsilbert resigning from Grayscale?
Grayscale has had 9 meetings with the SEC per the table below (h/t @JSeyff)
Today, there are only allegations against DCG which have not been resolved in a court of law.… https://t.co/d7tZFFAOoU pic.twitter.com/NjjdWq0F3a
Lumida Wealth CEO Ramah Luwalia speculates that Silbert’s resignation was likely of his own accord to improve the odds of the ETF approval — due in large part to the SEC’s ongoing investigation into Silbert and DCG.
Adam Cochran, a partner at crypto venture capital firm Cinneamhain Ventures, speculates Silbert’s decision to step down was “for sure an agreement” made between Grayscale and the SEC ahead of the conversion request being approved.
And there it is, this step down is for sure an agreement for Barry to be out for Grayscale to join the ETF ranks.
— Adam Cochran (adamscochran.eth) (@adamscochran) December 26, 2023
Glad I loaded up on GBTC and ETHE with the higher discount today. https://t.co/89G2QVOAEJ
Silbert’s departure was noted in an 8-K filing to the SEC filed on Dec. 26, with the firm announcing that DCG’s chief financial officer, Mark Shifke would succeed Silbert as chairman of the board at Grayscale.
Outside of Silbert stepping down, the most notable element of the amended S-3 filing was that Grayscale had “finally surrendered” to a cash creation model, according to senior Bloomberg ETF analyst Eric Balchunas.
Grayscale finally surrendering to cash-only creations, was a big holdout. Pretty sure they have an AP agreement (a crucial last step) so that would check all the boxes. That said, still a mystery whether they will be allowed to go on day one of the Cointucky Derby https://t.co/Wm7TfD3zkP
— Eric Balchunas (@EricBalchunas) December 26, 2023
Cash vs. in-kind creations have been an ongoing point of conflict between asset managers looking to launch a spot Bitcoin ETF and the SEC.
Related: Spot Bitcoin ETF inflows could dwarf all 163 crypto ETPs today
While most stock and commodity-based ETFs run on an in-kind model — which allows fund market participants to directly handle the asset in the fund — a cash-creation model means that new shares in a spot Bitcoin ETF could only be created or redeemed through cash transactions.
The SEC’s move to prevent broker-dealers from dealing directly with Bitcoin has been viewed as an attempt to better track the Bitcoin moving from exchanges and mitigating any potential risks associated with anti-money laundering or Know Your Customer compliance.
Scott Johnsson, general partner at VB Capital, noted that while the SEC purports to stand for investor protection, the cash creation model could pose a greater risk to investors looking to gain exposure to Bitcoin through a spot ETF.
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… pic.twitter.com/SdudYdsgoR
— Scott Johnsson (@SGJohnsson) December 27, 2023
“Despite all other spot commodity ETFs operating with in-kind models, this must be done in a novel way via cash and who knows if that will work,” wrote Johnsson.
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