Grayscale Investments’ application to convert the $13.5 billion Grayscale Bitcoin Trust (GBTC) into an ETF wrapper was denied by the SEC on Wednesday.
The SEC denied the conversion on the grounds that the application failed to answer the SEC’s questions about preventing market manipulation as well as other concerns, according to regulatory filings.
GBTC, the world’s largest bitcoin fund, traded on the OTC market, is down over 9% on Thursday morning, building on year-to-date weakness across the digital assets industry. GBTC is down nearly 65% year-to-date.
GBTC is a core holding in many ETFs offering exposure to digital assets, since it has historically been the closest thing that investors can add to their portfolios to get access to spot bitcoin in a pooled investment vehicle.
Mitigating the inherent volatility associated with cryptocurrencies has long been a reason why many investors favor diversified exposure to the digital assets space.
Todd Rosenbluth, head of research at VettaFi, pointed to the ARK Next Generation Internet ETF (ARKW), in which GBTC is weighted at 5.84% as of June 30, rounding out the bottom of the fund’s top five holdings.
Rosenbluth said that this speaks to the diversification of ARKW. “It owns GBTC but is balancing the risk with other investments,” he said.
In addition to blockchain and P2P, the fund offers exposure to companies that develop, produce, or enable cloud computing and cyber security, e-commerce, big data, artificial intelligence, mobile technology, the internet of things, and social platforms, according to the fund’s website.
ARKW’s top holdings as of June 30 include Zoom Video Communications (ZM, 9.06%), Roku Inc. (ROKU, 8.84%), Tesla Inc. (TSLA, 7.69%), and Block Inc. (SQ, 6.10%), according to the fund’s website.
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