Grayscale wrote to the US SEC: there is no "basis" to approve a Bitcoin futures ETF but not a spot ETF

Crypto asset manager Grayscale Investments hit back after the U.S. Securities and Exchange Commission (SEC) recently rejected VanEck’s application for a bitcoin spot ETF.

On November 29, the operator of Grayscale Bitcoin Trust (GBTC) sent a letter to US SEC Secretary Vanessa Countryman, saying that the US SEC was wrong to reject the spot bitcoin ETF because it had already approved three bitcoin futures ETFs , from VanEck, Valkyrie, and ProShares, respectively.

Grayscale believes that the US SEC "has no basis to show that investors can accept investing in the derivatives market of an asset instead of investing in the asset itself."

The firm alleges that the U.S. SEC violated the Administrative Protection Act (APA) by failing to treat the two bitcoin ETF products equally.

A bitcoin futures ETF allows traders to speculate on the future price of bitcoin through derivatives, while a spot bitcoin ETF allows traders to trade based on the asset's current price, so it functions similarly to holding the asset.

Grayscale is hardly a disinterested party. In October this year, Grayscale applied to list GBTC as a Bitcoin spot ETF, and may make a decision on Christmas Eve. On November 12, the US SEC rejected a similar application by VanEck on the grounds that it did not meet the requirements of the Securities Exchange Act of 1934.

Grayscale disagrees with the reasons for these denials.

“This rationale, in our view, fails to adequately consider significant regulatory and competitive developments since 2017, when the U.S. SEC first considered and denied a national securities exchange’s application to list and trade a spot bitcoin ETP.”

When approving the Bitcoin futures ETF, Grayscale believes that the US SEC allows applicants to avoid the requirements of Section 6(5)(b) of the Securities Exchange Act of 1934, while Bitcoin spot ETF applicants must comply with this requirement.

Article 6(5)(b) aims to "protect investors and the public interest" by preventing fraud and market manipulation, while also not allowing "unfair discrimination among clients, issuers, brokers or dealers".

Grayscale has predicted that its bitcoin spot ETF could launch as early as July 2022, but it is unclear whether this prediction will come true.

GBTC manages approximately US$37.1 billion in assets and has issued 692,370,100 shares.

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