Dusk has fallen on Bitcoin Trust

Grayscale Bitcoin Trust, or GBTC, traded on Thursday at a record 42% discount to the underlying value of the bitcoin it holds.

Why it’s important: Many savings and investment platforms have offered Grayscale crypto funds to clients requesting exposure to digital assets. As the largest US mutual fund offering exposure to bitcoin, it would seem like a natural choice.

• One of these platforms, Stash, has offered GBTC in its robo-recommended “Smart Portfolios.”
• When Axios asked Stash if users were made aware of the risk of the increasing discount before they invested, it declined to answer directly. A spokesperson later said investors were given general information that it had a higher expense ratio than most ETFs.

The big picture: Hope hangs on regulators approving a spot bitcoin ETF.

• An ETF would keep the price down to net asset value (reflecting the real price of bitcoin), and Grayscale plans to convert GBTC to an ETF if allowed.

Status: FTX.com’s collapse has been another setback for the crypto industry. And one of the most tangible consequences may be what happens to discover bitcoin ETF.

What they say: Steven McClurg, CIO of crypto ETF provider Valkyrie Investments — whose own spot bitcoin ETF was rejected — tells Axios: “We don’t think a spot ETF will be approved in 2023, nor is it on the agenda.

• The SEC has made it clear that an SEC-regulated exchange for bitcoin must exist first, and that may take some time.”

Catch up quickly: Grayscale is in a legal battle with the SEC over rejected applications for a spot bitcoin ETF, ramping up its campaign for one after its latest rejection earlier this year.

• The lawsuit alleges that the SEC “fails to apply consistent treatment to similar investment vehicles” in reference to the SEC’s approval of bitcoin futures ETFs.
• The firm found a backer in America’s largest crypto exchange, Coinbase Global, last month.

Flashback: Recall that the SEC rejected the first bitcoin ETF application, from Tyler and Cameron Winklevoss in March 2017, citing fraud and market manipulation concerns that make it inconsistent with the rules of a national securities exchange.

Zoom in: Crypto customers are top of mind, even more so after the FTX fallout.

• Grayscale, according to the lawsuit against the SEC, also argues that the absence of a spot bitcoin ETF hurts cryptocurios.
• And the SEC believes it is doing its job by keeping these ETFs out of reach.
• For his part, Stash CEO Brandon Krieg says he’s not “pushing crypto” and that the industry badly needs a regulator: “What I don’t like is that there’s no regulator, so it allows all this bad behavior.”

Bottom line: Who knows if a bitcoin ETF would be approved or not, but if it is not approved, it is easy to imagine that people will blame this chaos.