U.S. ETF firm looks to circumvent SEC restrictions

Simplify Exchange Traded Funds has filed a proposal with the Securities and Exchange Commission to launch an ETF that contains up to 15% shares in the Grayscale Bitcoin Trust as a workaround to regulatory restrictions.

The form—filed on March 9—reveals that the the Simplify U.S. Equity PLUS Bitcoin ETF would invest the remaining 85% of its assetsin United States stockmarket.

The filing shows how desperate United States financial firms are to launch a Bitcoin ETF despite the SEC’s longstanding opposition, which is based on market volatility, alleged manipulation, and the purported lack of liquidity. A number of straight Bitcoin ETF proposals are pending before the SEC, including projects by Valkyrie, Bitwise, VanEck, and even Goldman Sachs. Appetites have been whetted by the success of Canada’s Purpose Bitcoin ETF, which attracted more than a half billion dollars in its first few days. 

Bloomberg analyst Athanasios Psarofagis also explained a significant tax advantage of Simplify’s solution in a report published today:

“I’m sure most will ask, ‘Well, can’t I just do this myself with two ETFs?’ but an advantage in this case is the fund rebalances for you, so you will avoid any capital gains… It’s an interesting idea, because it gets people thinking about Bitcoin as an actual portfolio allocation versus something more speculative.”

While what Simplify came up with is undoubtedly an interesting workaround to SEC policies, it has significant disadvantages when compared to the Bitcoin ETF that the crypto community is still waiting for. One major disadvantage of using GBTC is that its price is often quite different from the actual price of Bitcoin, based on the demand for the fund.

As Modern Consensus reported yesterday, Grayscale recently suspended the trading of GBTC after having traded as low 15% below the price of the Bitcoins it holds after seeing as much as 40% of premium in the past. The asset manager also announced the intention to buy $250 million of the shares back and started hiring ETF experts, presumably to launch a Bitcoin ETF in the future. 

Financial Enhancement Group’s Andrew Thrasher told Bloomberg that he expects Simplify’s product will be still appreciated by investors as it “will appeal to a lot of advisors who have had an interest in getting exposure to Bitcoin or have clients asking for crypto.” He added:

“This gives the potential to have Bitcoin exposure within a traditional custodian account in an ETF wrapper, which hasn’t been done in the U.S. due to SEC resistance to approve a pure Bitcoin ETF.”