Crypto hedge fund Grayscale tells the US Securities and Exchange Commission (SEC) that its denial of 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 to a spot Bitcoin ETF would unlock over $4 billion in value by providing the regulatory relief necessary for the product to simultaneously create and redeem shares, thereby enabling arbitrage to address both premiums and discounts on the shares as compared to net asset value.
This conversion will also expose trading in GBTC to increased regulatory standards and improve investor protection. The SEC̵[ads1]7;s reluctance to bring Bitcoin further into the regulatory perimeter through a spot Bitcoin ETF has prevented US investors from getting the Bitcoin investment exposure they both want and deserve.”
Grayscale first sued the SEC in June 2022. In an October 2022 filing, the firm claimed the regulatory agency showed bias when it rejected the hedge fund’s bid for a Bitcoin ETF in June.
In the lawsuit, Grayscale claims that the SEC’s approval of other BTC-related products, such as the approval of a BTC futures ETF on the Chicago Mercantile Exchange (CME), is inconsistent with its rejection of Bitcoin ETFs.
In the official lawsuit, Grayscale refers to the SEC’s decision to grant a futures BTC ETF on the CME based on the level of collateral as “illogical” because the same type of collateral would be required to operate a BTC ETF.
“The order in this case is arbitrary at its core. Its central premise—that the exchange’s monitoring sharing agreement with CME provides adequate protection against fraud and manipulation in the Bitcoin futures market, but not the spot Bitcoin market—is illogical.
Any fraud or manipulation in the spot market will necessarily affect the price of Bitcoin futures, thereby affecting the net asset value of an ETP [exchang-traded product] to hold either spot Bitcoin or Bitcoin futures as well as the price investors pay for such ETP’s shares.”
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