The Grayscale Filecoin Trust and the SEC: What does it mean?
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For years, the US Securities & Exchange Commission has tried its best to shut down cryptocurrencies and the companies involved in the digital asset space.
By and large, they’ve been quite successful at putting a lot of fear into the market. But a recent court decision against the SEC and in favor of one product – the Grayscale Bitcoin Trust – might just be changing the game for the better.
Why? Because it could open the door to a number of new innovations in the space, notably the Grayscale Filecoin Trust that we’ll discuss shortly.
First, a bit of background: Over the past few years, the SEC has filed dozens of lawsuits against digital asset companies, accusing many of them of offering “unregistered securities” to the public.
But while there are undoubtedly bad actors in this space, the SEC has also targeted companies that try to comply with the agency’s ever-changing rules.
Ripple Labs, Kraken, Filecoin, and Coinbase have all been targeted in the SEC’s vendetta against crypto.
These are all, to the best of our knowledge, legitimate companies offering products and services that people want to buy.
The SEC is on a Losing Streak thanks to the Grayscale Bitcoin Trust Decision
In 2023, a federal appeals court ordered the agency to reopen the review process to convert the Trust into an ETF – something it had previously refused to approve.
As a result, the SEC is now on the verge of approving the first exchange-traded fund that directly tracks bitcoin’s current trading, or “spot” price.
Currently, this fund is available only as a “private placement” to wealthy investors.
But once the SEC approves its conversion into an ETF, anyone with a brokerage account will be able to buy and sell bitcoin.
Bitcoin is by far the most widely traded cryptocurrency, with a market cap of more than $800 billion. And on its own, this would be a big development.
Because it could encourage many more companies in the space to try and get their products out to a larger investor base as well.
Indeed, an application is also pending for the SEC to convert another Grayscale product — Grayscale Ether Trust — which targets ether, into an ETF.
Next to bitcoin, ether is the second most widely traded cryptocurrency, with a market cap of nearly $300 billion.
Bitcoin and Ether ETFs Are a Game-Changer
The conversion of the Trust into an ETF which would allow ordinary investors – not just wealthy ones – to buy bitcoin and ether through their brokerage accounts, could be a game-changer.
One expert, Ric Edelman, the founder of the Digital Assets Council of Financial Professionals, thinks that change could drive $150 billion into crypto investments.
We also think that bitcoin and ether ETFs are just the beginning.
Enter the Grayscale Filecoin Trust
It is currently available only as a private placement called the Grayscale Filecoin Trust.
Filecoin is a crypto project designed to provide economic incentives to ensure files are stored safely and securely over time. It’s an example of the crypto industry’s attempt to move beyond “just” offering payment solutions to making better use of the full value of the blockchain that underlies these technologies.
Those incentives in question are made in the form of Filecoin’s own cryptocurrency.
Grayscale would like to convert the Grayscale Filecoin Trust into an ETF.
But in May, the SEC asked Grayscale to withdraw its application, further chilling attempts by the sector to build crypto products available to the general market.
But now that Grayscale prevailed against the SEC in reference to its bitcoin ETF, we think the agency could be forced to reconsider its rejection of the company’s filecoin ETF.
And that’s just the tip of the iceberg.
Other major firms seeking to introduce crypto-related ETFs include Fidelity, Franklin Templeton, and BlackRock.
For us, that is an exciting proposition.
Are Grayscale’s Filecoin Trust and other such Products Risky?
Ultimately, that will be for you to decide. Here at the Nestmann Group, we tend to work with clients focused on wealth protection.
They tend to be conservative in nature. They don’t want wild swings in the value of their investments. They tend not to speculate.
However, it’s difficult to deny the activity in this space. We’ve had a number of clients who’ve made fortunes (one to the tune of nine figures) through crypto investments. So clearly there’s an opportunity.
But it’s also a very volatile place. Products like Grayscale’s may eventually help make the space more “respectable” and iron out some of that volatility.
As for the best time for you to jump in – if at all – will be up to your own investment goals. But perhaps it’s worth a look.
And if you do, prepare for a possibly wild ride.
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We have 40+ years experience helping Americans move, live and invest internationally…
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