Grayscale Writes to SEC Regarding Spot Bitcoin ETFs

If the SEC can approve Bitcoin futures ETFs, there should be no basis to reject spot Bitcoin ETFs, according to Grayscale.

Grayscale Investment, the investment management company for digital currencies and cryptocurrencies, has issued a public letter to Vanessa Countryman, secretary of the United States Security and Exchanges Commission (SEC). The company argued that the SEC’s rejection of the spot Bitcoin ETFs was not consistent with the commission’s previous decisions.

Grayscale pointed out that the SEC had previously approved three Bitcoin futures ETFs, one each from VanEck, Valkyrie and ProShares. Grayscale added that there is therefore no legal explanation for the recent rejection of VanEck’s spot Bitcoin ETF application.

The regulatory authority has “no basis for the position that investing in the derivatives market for an asset is acceptable to investors, while investing in the asset itself is not possible”, Grayscale argued in the letter.

The investment company also accused the SEC of failing to comply with the provisions of the Administrative Protections Act (APA) because the SEC treats two Bitcoin ETF products differently:

“We believe that this justification did not adequately take into account the significant regulatory and competitive developments since 2017, when the Commission first examined and rejected the application of a national securities exchange for listing and trading shares of a Bitcoin cash ETP for the first time.“

Grayscale recommended that the SEC should exclude the requirements of Section 6(5)(b) of the Exchange Act for Bitcoin spot ETF applicants.

A spot Bitcoin ETF works similarly to holding the asset. Investors can trade with the current price of Bitcoin. However, a Bitcoin futures ETF allows traders to speculate on the future price of the asset through derivatives.

The SEC rejected VanEck’s application on November 12 on the grounds that it did not comply with the requirements of the Securities Exchange Act of 1934 (Exchange Act). Grayscale made a similar request in October, with a decision expected by the end of the year.

The prospects for Grayscale’s proposal to list GBTC as a Bitcoin spot ETF are not very positive, given the SEC’s recent ruling on VanEck.

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