ETF filing in U.S. aims to invest 15% of assets in Grayscale’s Bitcoin Trust

  • Simplify’s ETF seeks to gain long-term capital appreciation by investing in Grayscale’s Bitcoin (BTC) fund.
  • The Bank of New York Mellon will manage the trust and will act as transfer agent, custodian, and accountant.

Simplify Asset Management has filed an ETF application with the U.S. Securities and Exchange Commission (SEC) that is based in part on Bitcoin. According to the filing, the firm proposes to create the “Simplify U.S. Equity PLUS Bitcoin ETF.”

The investment firm intends to achieve “long-term capital appreciation” by investing 15% of total assets in the cryptocurrency. Under the investment strategy, the exposure will be indirect through the exclusive purchase of Grayscale’s Bitcoin Trust shares. The document explains the following:

(…) investing up to 15% of its total assets (measured at the time of investment) in a wholly-owned and controlled subsidiary, which is designed to enhance the ability of the Fund to obtain exposure to cryptocurrencies consistent with the limits of the U.S. federal tax law requirements applicable to regulated investment companies.

80% of the total assets shall be invested in companies organized in the United States and in stocks primarily traded in the country. The fund shall be traded on Nasdaq under the ticker SPBC and managed by The Bank of New York Mellon. The banking institution will also act as the transfer agent, custodian and bookkeeper.

Among the risks of investing in Bitcoin that the fund is considering, according to the form, are the high volatility of Bitcoin, the lack of a sound regulatory framework, the potential restriction of cryptocurrencies by the U.S. government, and the uncertainty surrounding “some aspects” of taxation related to investing in BTC. Therefore, the document states:

Grayscale Bitcoin Trust is expected to be treated as a grantor trust for U.S. federal income tax purposes, and therefore an investment by the Fund in Grayscale Bitcoin Trust will generally be treated as a direct investment by the Fund in bitcoin for such purposes.

Grayscale could keep growing despite ETF competition

After GBTC traded at a premium for a long time, the value turned negative for the first time in recent days. Just today came the news that Grayscale stopped new investments in GBTC after the value fell to -15% on the Bitcoin price.

One reason for the “negative price premium” could be Bitcoin ETFs, several of which were recently approved in Canada. However, Simplify’s ETF could solidify Grayscale’s dominance, although ETFs are actually seen as competition. This also fits with a recent job posting by Grayscale for an ETF specialist a few days ago.

Although the SEC has opposed approving a bitcoin ETF in the past, many analysts believe high demand from institutional investors will make it inevitable in 2021. Canada as a role model and competitor could be a driving factor here.

About Author

Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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