Checkout Matt Levine's newsletter. He talked about Bitcoin ETF end of August. https://www.bloomberg.com/opinion/articles/2023-08-29/graysc...

Below is the excerpt from his newsletter (Bloomberg site prevents me from reading online):

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There are two ways to run a Bitcoin exchange-traded fund:

1. You could raise money from investors, park it in cash or Treasuries, and trade cash-settled Bitcoin futures listed on a US commodities exchange.[1] The futures would periodically expire, paying off whatever Bitcoin is worth at the time, and you would roll the proceeds into new futures to keep your Bitcoin bet active. The ETF would roughly track the price of Bitcoin, because the futures pay off based on the price of Bitcoin, but there would be some frictional costs from rolling the futures and some tracking error.

2. You could raise money from investors, use it to buy Bitcoins, and keep the Bitcoins somewhere safe. Then you’d have Bitcoins, and the price of the ETF would track the price of Bitcoin. If it didn’t, arbitrageurs could deliver Bitcoins and get back ETF shares, or deliver ETF shares and get back Bitcoins, just like any normal stock index ETF.

It seems to me that Approach 1 is, you know, fine and interesting, but Approach 2 is strictly better: It’s simpler for the ETF manager to do, simpler for investors to understand, and has less friction and tracking error. My one quibble with Approach 2 is that you really do have to keep the Bitcoins somewhere safe, and there is a long, long, long history of people in crypto finding exciting new ways to lose their cryptocurrency, but I think that in 2023 “buy Bitcoins and don’t lose them” is the sort of thing that you can expect a regulated financial institution to manage.

But in fact the US Securities and Exchange Commission has approved Bitcoin futures ETFs (Approach 1) and repeatedly declined to approve spot Bitcoin ETFs (Approach 2), for reasons that have never really made much sense to me. Essentially the SEC worries that the spot Bitcoin market is the Wild West, someone might manipulate it, and if they did then the price of the Bitcoin ETF would be manipulated. Whereas Bitcoin futures trade on the Chicago Mercantile Exchange,[2] a US commodities exchange regulated by the Commodity Futures Trading Commission; that market is presumably free of manipulation, so a Bitcoin futures ETF can rely on it.

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The biggest wannabe spot Bitcoin ETF is the Grayscale Bitcoin Trust, a $16 billion pot of Bitcoins that is organized as a closed-end investment trust; it trades under the ticker GBTC, and it has been trying to convert into an ETF for years. In its current form, it can accept new investor money but can’t really redeem investors, which makes it not a great way to hold Bitcoin; it has over the years traded at large premiums or discounts to the actual price of Bitcoin, and as of yesterday it traded at about a 25% discount.[5] Converting to an ETF would make it easier for Grayscale to transform Bitcoins into GBTC shares and vice versa, which should more or less eliminate the discount and create billions of dollars of value for investors.

Grayscale kept asking the SEC to approve it as an ETF, the SEC kept saying no, so Grayscale sued in US federal courts. Today it won:

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