Grayscale Puts Trust to the Test by Pursuing SEC Registration

On Nov. 19, Grayscale Investments, a subsidiary of Digital Currency Group and the world’s largest digital asset manager, filed a voluntary registration statement on Form 10 with the United States Securities and Exchange Commission on behalf of its Grayscale Bitcoin Trust.

If successful, the move would result in the trust acquiring the status of an SEC reporting company, the first cryptocurrency investment instrument to do so. The trust’s shares would therefore be registered according to the requirements of the Securities Exchange Act of 1934.

Grayscale Investments expects the development to broaden the product’s investor base and provide those already holding the trust’s shares better transparency and liquidity. However, the digital asset management company also emphasized that it is seeking neither an exchange-traded fund status nor listing on a national securities exchange.

So, what would the regulator’s approval of the form mean for Grayscale Bitcoin Trust and the wider crypto industry?

How Bitcoin trusts work

An investment trust is a company that owns a fixed amount of a certain asset and issues contracts representing shares of its ownership. Investors who own the shares also pay fees to the company that manages the trust. Each share of Grayscale Bitcoin Trust currently represents a little less than 0.001 BTC, with an annual fee of 2%. The share of ownership by a contract slowly decreases over time. Overall, the trust holds some 175,000 Bitcoins.

Launched in September 2013 and trading since May 2015, Grayscale markets GBTC as a “traditional investment vehicle” whose structure is familiar to financial and tax advisors. Although the firm consistently emphasizes that the product is not an exchange-traded fund, GBTC is modelled similarly to many popular commodity-based ETFs. The shares are eligible to be traded through brokerages and can be held in tax-advantaged accounts, such as individual retirement accounts or 401(k)s.

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