Grayscale Applies for Covered Call ETF Hours after Spot Bitcoin ETF Approval

The SEC has received a filing for a covered call ETF from Grayscale, which will have no direct exposure to crypto.

Grayscale Investments has submitted an application for a covered call exchange-traded fund (ETF) to the United States Securities and Exchange Commission (SEC). According to a Form N-1A filed on Thursday, the ETF will actively manage exposure to the Grayscale Bitcoin Trust (GBTC), and trade call and put option contracts with GBTC as the reference asset. The filing notes:

“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 (ICO). However, the ETF will have indirect exposure to cryptocurrencies through exchange-traded products that use crypto as investments. Speaking on the filing, Grayscale CEO Michael Sonnenshein said:

“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 incorporates two strategies: the ETF and the covered call. While the ETF is a basket of investments available on an exchange, the covered call strategy allows fund managers to sell call options on the assets in the ETF. This is a way to generate income, which is then disbursed to shareholders.

Bitcoin ETFs Already Scaled the $4 Billion Mark

Grayscale applied for a covered call ETF only hours after the SEC approved 11 spot Bitcoin ETFs, including one from Grayscale. This is a historic event in the cryptocurrency space as the SEC has rejected all spot Bitcoin ETF proposals since the first one was filed in 2013. Optimism for approval later spread in the market after Grayscale sued the SEC for the rejections. The court ruling sided with Grayscale, poking holes in the SEC’s argument against the ETFs.

According to 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 in the lead, with $1.9 billion. BlackRock’s ETF came in second at $942 million, while Fidelity Investments had the third position at $628 million. WisdomTree, Hashdex, and Valkyrie had the lowest volumes, lower than $10 million in the same period.

Despite the celebration, not everyone at the SEC is comfortable with the approval. The vote that resulted in ETF approval came from Commissioners Hester Peirce, Mark Uyeda, and Chairperson Gary Gensler. Although Jaime Lizárraga and Caroline A. Crenshaw dissented, their votes were a minority.

Commissioner Crenshaw has said that the SEC approved exchange-traded products (ETPs) and not ETFs. Expressing her disapproval, she claims the approval action is “unsound and ahistorical,” and could “put us on a wayward path that could further sacrifice investor protection.” In addition, the Commissioner specified that the Bitcoin market is plagued with a lot of manipulation and fraud. According to her, this could be detrimental to investors.


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