The Grayscale Effect: How One Company’s SEC Victory Birthed the Crypto ETF Complex

It’s been one year since Grayscale won a landmark court battle against the U.S. Securities and Exchange Commission (SEC), which served as the first major step toward the approval of Bitcoin (BTC) exchange-traded funds (ETFs).

Since then, the Bitcoin ETF market has blossomed, the Ethereum ETF market has struggled, and Grayscale’s ETFs have been the loss-leaders since their inception.

Grayscale vs. SEC

For quite some time, the world of legacy finance viewed Bitcoin and crypto through an awfully skeptical and perhaps cynical lens.

Grayscale, which was founded in 2013 and launched its Bitcoin Trust that very same year, was the first publicly traded BTC fund in the U.S., which they continued to pioneer with the creation of new crypto funds.

But the ultimate goal was always an ETF, which was considered the holy grail for crypto’s dreams of mainstream adoption.

In 2022, the SEC denied Grayscale’s application to convert GBTC into an ETF, which resulted in the company taking the bold move to sue the SEC.

Thanks to the SEC’s lack of specificity and evidence to show that Grayscale’s application for a BTC ETF was not “materially similar” to futures-based funds, the court ruled that the SEC must review the application to convert GBTC into an ETF.

That year, several major firms, such as BlackRock, submitted applications to list spot Bitcoin ETFs, which undoubtedly applied significant pressure on the SEC.

Following the news, BTC began to rally and pushed up from $25,000 in September 2023 to $42,000 by the end of the year.

The Moon Mission

The Grayscale court decision forced the regulator to reassess its approach. On Jan. 11, 2024, the Grayscale Bitcoin Trust ETF became the first spot Bitcoin ETF to trade in the U.S.

Several other fund issuers launched their BTC ETFs alongside it. To date, all twelve funds command $54.36 billion in net assets or approximately 4.62% of Bitcoin’s market cap.

It became apparent that investor demand was huge. By the end of March 2024, just over $11 billion had poured in.

Now, Hong Kong and other major nations are trading spot Bitcoin and Ethereum ETFs. Additionally, efforts are underway to see Ripple (XRP), Solana (SOL), and others achieve the coveted ETF status.

Grayscale’s Losses

There’s a deep and unfortunate sense of irony to all of this.

Namely being that Grayscale’s Bitcoin and Ethereum ETFs have been major outliers as they have lost billions upon billions in exits from its funds.

Despite being the main driver behind the crypto ETF push, Grayscale has seen almost $20 billion in exits from its BTC ETF and over $2.5 billion from its ETH ETF.

This makes Grayscale an unfortunate victim of its own success.

Grayscale did launch two “mini” Bitcoin and Ethereum ETFs with significantly lower management fees in a bid to stem the ridiculous exits.

However, these funds have seen combined cumulative inflows of around $670 million.

In fact, their performance overall has been the main driver behind a majority of the negative outflows often reported on CCN. However, there’s no telling when these exits will end.

About the Author

Eddie Mitchell

Eddie is a gaming and crypto writer at CCN. Covering the often weird and wonderful world of Web3 with an adoring, but skeptical eye.

Prior to CCN, Eddie has spent the past seven years working his way through the crypto, finance, and technology industry. He began with PR and journalism with Bitcoin PR Buzz and BitcoinNews.com, eventually working his way to become a copywriter with a dozen firms, including the likes of Polkadot before returning to journalism in 2023.

Having studied Radio production and journalism at University in the UK, Eddie spent a few years making podcasts and presenting on a local London radio station as he built up his writing chops.

A lifelong skateboarder, Eddie can often be found at the skatepark or touring the streets looking for something new to try. That, or kicking back playing JRPGs on his original PSP.

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