Crypto hedge fund Grayscale tells the US Securities and Exchange Commission (SEC) that its opposition to Bitcoin (BTC) exchange-traded funds (ETFs) is “illogical.”
In response to a brief filed by the SEC last month, Grayscale says converting the Grayscale Bitcoin Trust (GBTC) into a spot BTC ETF would greatly benefit traders by unlocking value and increasing investor protection.
“For more than 850,000 investors, converting GBTC into a spot bitcoin ETF would unlock over $4 billion in value by providing the regulatory ease required for the product to create and redeem shares simultaneously , allowing arbitrage to address both premiums and discounts of the Shares relative to the Net Asset Value.
This transition would also subject GBTC trading to stricter regulatory standards and improve investor protection. The SEC’s reluctance to move bitcoin further into the regulatory perimeter through a spot bitcoin ETF has prevented U.S. investors from gaining the bitcoin investment exposure they both want and deserve.”
Grayscale first sued the SEC in June 2022. In an October 2022 filing, the company claimed the regulator showed bias when it rejected the hedge fund’s bid for a Bitcoin ETF in June.
In the lawsuit, Grayscale alleges that the SEC’s approval of other BTC-related products, such as approving a BTC futures ETF on the Chicago Mercantile Exchange (CME), conflicts with its disapproval of Bitcoin ETFs.
In the official court filing, Grayscale called the SEC’s decision to grant a futures BTC ETF on CME based on its level of collateral “illogical” because the same type of collateral would be required to operate a BTC ETF.
“The Order in this case is arbitrary to the core. Their central premise – that the exchange’s surveillance-sharing agreement with the CME provides adequate protection against fraud and manipulation in the bitcoin futures market, but not in the spot bitcoin market – is illogical.
Any fraud or manipulation in the cash market would inevitably impact the price of bitcoin futures, and therefore an ETP’s net asset value [exchang-traded product] hold either spot bitcoin or bitcoin futures and the price investors pay for shares of any such ETP.”
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