Grayscale Boss Explains Why Approval Of Inverse Bitcoin ETF Is Good Sign For Crypto

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Grayscale Boss Explains Why Approval Of Inverse Bitcoin ETF Is Good Sign For Crypto

2022-06-24 | Selina Mathew

Introduction

Grayscale Investments, the world’s largest digital currency asset manager, has just launched its first Bitcoin investment product that short-sells Bitcoin (BTC).

In a tweet on May 1, Grayscale announced the launch of its Grayscale Bitcoin Short Fund LLC (ticker symbol: BCHG), which offers investors exposure to inverse BTC.

The company further explained that BCHG is a trust that “seeks to provide investors with a means of tracking the market price movement of BCH per share, less the Trust’s expenses and other liabilities.”

Similar to a regular ETF, an inverse ETF tracks the opposite price action of an underlying asset or index.

According to the Chicago Board Options Exchange (CBOE), there are currently more than 1,000 publicly listed ETFs in the U.S. An inverse ETF is similar to a cryptocurrency exchange in the sense that it allows you to trade units of an investment product.

But unlike cryptocurrency exchanges, which require depositing your assets with them and keeping them there during the trading process, inverse ETFs are simply contracts between two parties:

one party agrees to buy shares of an asset (or index) at a certain price point and another party agrees to sell those shares back at that price pointThe key difference between an inverse ETF and a regular ETF is that while regular ETFs track the price movement of their underlying assets or indices, inverse ETFs have negative correlations—meaning they make money when those assets or indices fall in value.

For example, if you buy shares in an inverse Bitcoin fund such as Grayscale’s BCHG trust—which tracks Bitcoin Cash instead—you’re betting against Bitcoin itself by making yourself short BTC;

if BTC falls by 3% on any given day while BCHG goes up by 3%, then your investment has made money overall because BCHG went up faster than BTC did."

Grayscale CEO Michael Sonnenshein said that Grayscale was able to launch its first directly inverse Bitcoin ETF on regulated stock exchanges with existing products as models, rather than as a novel idea.

The Grayscale executive argued that this is good news for those waiting for a long Bitcoin ETF offering direct exposure to BTC without having to buy it on a crypto exchange first.

Sonnenshein noted:

“…it's important to note that the SEC has been reviewing our proposal since last year and we're hopeful they'll take another step forward by approving our request in 2019.

Approval would be historic and could have lasting implications beyond just institutional investors; it would establish Bitcoin as an asset class independent of stocks or bonds in terms of risk management and investment strategy."

Sonnenshein believes that approval of the first institutional BTC ETF by the U.S. Securities and Exchange Commission (SEC) could be a matter of time then:

“The main reason for optimism is that this is the first time a company has attempted to get a Bitcoin ETF approved by the SEC. The approval of Grayscale’s Bitcoin Investment Trust (GBTC) could be a matter of time,” said Sonnenshein in a statement. Inverse ETFs are designed to gain value when their target market loses value and vice versa.

For example, an inverse gold ETF would see its value increase when the price of gold decreases and fall when it rises.

Approval would mean that investors can now invest in Bitcoin through traditional means like IRAs (Individual Retirement Accounts), 401(k) plans, and other types of retirement accounts which have previously been unavailable due to regulatory concerns surrounding security tokens like cryptocurrencies or blockchain projects such as Ethereum (ETH). read more @ Top Cryptocurrency News

Conclusion

If the SEC has already approved an inverse Bitcoin ETF, it’s going to be a matter of time before we see the first Bitcoin ETF approved by the agency — and I believe that’s a good thing for investors. We’re paying attention to what they do with [Grayscale] Bitcoin Trust, as well as how they deal with some other petitions out there.

So I feel very optimistic that we’ll see an ETF sooner rather than later.

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