Grayscale Litecoin Trust Takes One Step Closer to ETFs

Grayscale Investments, the world’s largest digital asset manager with approximately $50 billion in AUM, exclusively told Forbes that Grayscale Litecoin Trust (LTCN) has become an SEC reporting company, along with Bitcoin (GBTC), Ethereum (ETHE), and Digital Large Cap Fund. It was revealed. (GDLC), Ethereum Classic (ETCG), and Bitcoin Cash (BCHG) trusts.

The new designation means that periodic financial statements and disclosures regarding the trust will now be provided to the U.S. Securities and Exchange Commission (SEC). The Trust is also expected to comply with all other requirements set forth in the Securities Exchange Act of 1934. Grayscale’s six trusts will therefore now be subject to regulations more similar to publicly traded companies seeking to upgrade their status from ETPs to ETFs.

“This is not only what our investors have expressed they want, but what we think we deserve,” Grayscale CEO Michael Sonnenshein said ahead of the announcement. He also said that creating an SEC reporting company “opened Grayscale up to more investors who are typically used to seeing that fact.” (Reporting Type) “When thinking about investing.”

ETF status opens confidence to the broader retail market and significantly increases accessibility for investors looking to purchase shares of the trust. For existing and accredited investors, the lock-up period will be shortened from 12 months to 6 months as more of the underlying assets flow directly into the trust.

To date, the SEC has not approved a Bitcoin ETF prior to Gemini’s Winklevoss twin attempt in 2018. However, sentiment appears to be changing as former SEC Chairman Jay Clayton, who rejected several Bitcoin ETF proposals, is now fighting for approval. Current SEC Chairman Gary Gensler has also made clear his support for ETFs, but has said he prefers futures ETFs over cash market-based ETFs. In his speech he said:

“We expect that there will be reports related to exchange traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with other federal securities laws, Act ’40 provides significant investor protections…I look forward to staff review of those filings. Especially if this is limited to Bitcoin futures traded on CME. (Emphasis added).”

“We would like to see the SEC allow both futures-based and spot-based products in the marketplace simultaneously, creating a level playing field where investors can choose the product that suits them best. This would be short-sighted or short-sighted. The SEC favors products registered under one law over another.”

Neena Mishra, Director of ETF Research at Zachs Investment Research, commented: There are fundamental differences between cash-based ETFs and futures-based ETFs that impact investors differently depending on their preferences and asset types.

“The problem with futures-based products is that the futures have to roll over. Futures markets are typically in contango. This means futures expiring later will be more expensive. ETF sponsors therefore end up selling cheaper products to buy more expensive products, all of which are passed on to investors. There are estimates that additional costs could be around 10%.”

“We can compare the storage of Bitcoin with the storage of gold, they are similar. That’s why it makes more sense for the SEC to approve physically backed products.

The ideal outcome for investors is likely to be a spot-based ETF. This is something Mishra has mentioned in the past while looking at investor preferences, but there are arguments on both sides.