What is a Hedge Fund?
A hedge fund is a type of investment instrument that targets qualified investors, institutional investors, and high-net-worth individuals. Because these funds historically concentrate on hedging risk by concurrently purchasing and shorting assets in a long-short equity strategy, the word “hedge” is used to describe them.
Hedge funds use pooled capital and a variety of trading techniques to generate active returns for their clients. To increase returns, these funds are pretty aggressive with the use of derivatives and leverage. They typically generate revenue by taking a management fee and a cut of the gains. A 2 percent charge on assets under management and 20 percent of earnings, occasionally over a high water mark, make up the conventional fee structure.
What is Grayscale Crypto?
Grayscale Investments is the world’s largest digital currency hedge fund. It helps accredited investors manage their funds. The custody of assets under management is handled via the Coinbase custody services (AUM). The company offers digital currency market data, exposure to crypto investments, and crypto investment solutions. With over 700,000 investors and $24.1 billion in assets, The Grayscale Bitcoin Trust (ticker: GBTC) is the largest publicly listed Bitcoin fund in the world. It’s a private placement trust that trades over the counter like a stock.
On January 21, 2020, Grayscale registered its shares with the Commission and was designated as an SEC reporting business, making the Trust the first investment vehicle for digital currency to get this designation.
What is Spot Bitcoin ETF?
In order to understand what a Spot Bitcoin ETF means, we need to explain first what an ETF is. An Exchange Traded Fund (ETF) is a pool of investments that works like a mutual fund. ETFs often follow a certain sector, index, commodity, or other assets such as cryptocurrencies. Unlike mutual funds, however, they can be bought or sold on a stock exchange just like conventional stocks.
A spot Bitcoin ETF is an exchange-traded fund that tracks the price of Bitcoin through spot markets. You might be wondering what a “spot market” is. Well, it’s like wanting to buy a Mercedes and receiving it as soon as you pay. A “future market” is like buying a Tesla: you pay today, and receive it after a couple of months
Why Did Grayscale SUE the SEC?
Since Grayscale investments is registered with the SEC, it provided the latter with clearance in order for them to list their spot Bitcoin ETFs in the public markets. However, the SEC rejected the proposal. They claimed that Grayscale did not provide “solid evidence” to prevent fraud and manipulation when their product launches.
Being a listed company reporting to the SEC is a very tidious activity, as the company would need to report every tiny little detail when it comes to their business activity. Since the company was confident that they did do their due diligence, the CEO of Grayscale Michael Sonnenshein announced that they plan to file a lawsuit against the SEC for this rejection.
How will the Grayscale SEC Lawsuit affect Bitcoin?
Since the rejection of the SEC to list GBTC, the price of Bitcoin has taken a hit of around 12%. Prices of Bitcoin fell back below the psychological price of $20,000. This proves that big investors were watching closely as the SEC events unraveled. Listing GBTC means that there would be a higher demand for Bitcoin. This will in turn increase the price of BTC across all markets. Now that the CEO of Grayscale is firing back at the SEC, some sort of “hope” should instigate buyers to jump back on board, hoping for a win in the next 9-12 months.