The United States Securities and Exchange Commission (SEC) received a filing for a covered call ETF from Grayscale, which will not have any direct exposure to crypto.
Grayscale Investments has applied to a covered call exchange-traded fund (ETF) to the US SEC. Based on information in Form N-1A filed on January 11, the ETF will actively manage this exposure to the Grayscale Bitcoin Trust (GBTC), and trade call and put option contracts with GBTC as the reference asset. The filing noted:
“The Grayscale Bitcoin Trust Covered Call ETF seeks to provide and deliver current income while also providing participation in the price return of Grayscale Bitcoin Trust.”
Grayscale’s Covered Call Product
The form specifies that Grayscale’s covered call ETF will not directly invest in digital assets or initial coin offerings (ICOs). Nonetheless, the ETF will have indirect exposure to cryptos via exchange-traded products that utilize crypto as investments. While speaking on the filing, Grayscale CEO Michael Sonnenshein stated:
“This should be received as a declaration of not only not just having gotten GBTC to market as a spot Bitcoin ETF, but our commitment to the product’s growth and the ecosystem around the product itself.”
A covered call ETF is an investment fund that integrates two strategies: the ETF and the covered call. While the ETF is a basket of investments available on an exchange, the covered call strategy enables fund managers to sell call options on the asses in the ETF. That is a way of generating income. The income is then disbursed to the shareholders.
Related:Grayscale and SEC Discuss Bitcoin ETF Application Following Court Victory
Bitcoin ETFs Scaled The $4 Billion Mark
Grayscale applied for a covered call ETF barely hours after the SEC approved 11 spot Bitcoin ETFs, including one from Grayscale. This was undoubtedly a historic event in the crypto sector as the SEC has rejected all spot Bitcoin ETF proposals since the first one was filed in 2013. Optimism for approval spread in the entire market after Grayscale sued the SEC for the many rejections. The court ruling sided with Grayscale, poking holes in the SEC’s argument against the ETFs.
Based on reports, the volumes recorded among the approved spot Bitcoin ETF already crossed $4 billion on the first trading day. As of 3:02 pm ET, Grayscale was leading with $1.9 billion. BlackRock’s ETF came second at $942 million, while Fidelity Investments was third with $628 million. On the other hand, WisdomTree, Hashdex, and Valkyrie had the lowest volumes, Lower than $10 million in the same period.
Despite this celebration, not everybody at the SEC is comfortable with that approval. The vote that resulted in ETF approval came from Commissioners Hester Peirce, Mark Uyeda, and Chairperson Gary Gensler. However, Jaime Lizárraga and Caroline A. Crenshaw dissented, but their votes were a minority.
Commissioner Crenshaw said that the SEC approved exchange-traded products (ETPs) and not ETFs. Expressing her disapproval, she alleged that the approval action is “unsound and ahistorical,” and could “put us on a wayward path that could further sacrifice investor protection.”
Furthermore, the Commissioner specified that the Bitcoin market is affected by a lot of fraud and manipulation. According to her argument, this could be highly detrimental to investors.
