The Securities and Exchange Commission (SEC) has received hundreds of letters in support of converting the Grayscale Bitcoin Trust into the first Bitcoin instantaneous trading fund (ETF). The most recent letters were received only last week, April 21, and they may continue to come until the Securities and Exchange Commission makes a decision, likely before July 2022.
In recent months, the Securities and Exchange Commission (SEC) has rejected several proposals for a spot ETF that would directly track the price of bitcoin, including one from Fidelity. This followed a years-long practice in which the agency has long claimed that the bitcoin market and the broader cryptocurrency markets suffer from price gouging and fraud, making the ETF a dangerously unsuitable investment for casual investors.
The US Securities and Exchange Commission has approved ETFs holding crypto futures contracts because these products are traded on platforms overseen by US financial regulators, but spot crypto ETFs raise concerns as digital assets trade on unregulated platforms where monitoring is difficult.
But now, a single letter sent to the regulator from Grayscale’s legal advisors last week, on April 18, may increase pressure on the regulator to convert the world’s largest crypto investment vehicle into a fund that can trade on major exchanges. Grayscale’s battle to become the first Bitcoin ETF is considered by many in the industry as the last chance to launch this type of product in the near future. Some competitors have already abandoned plans to open similar funds, and only three more projects are in the waiting list for approval.
Grayscale’s legal team supports its claim for approval based on a recent decision by the Securities and Exchange Commission (SEC) to accept a future cryptocurrency from Teucrium under the rules that will govern Bitcoin ETFs.
One of the legal arguments made by the Grayscale team is that since Bitcoin futures and futures-based products face exposure to the same underlying Bitcoin market, any fraud or manipulation of the underlying market will affect both products in the same way. Therefore, the presence of these risks cannot be a justification for agreeing to one application and rejecting the other.
“We believe Teucrium’s order confirms [that] “When it comes to approving exchange-traded products, there is no basis for treating Bitcoin spot products differently from Bitcoin futures,” Grayscale’s lawyers said in their letter.
The letter continues, citing another provision of the exchange law that bans exchanges from having rules that “allow unfair discrimination” between issuers. Considering Grayscale, since the Teucrium listing exchange is also seeking to list Bitcoin, “a refusal to apply the exchange itself to listing Bitcoin due to concerns about the underlying Bitcoin market would create unfair discrimination.”
However, it is not yet clear whether these arguments will change SEC Chairman Gary Gensler’s approach to crypto assets. The SEC chief has long argued that most tokens are securities and are subject to SEC oversight, and that crypto platforms must register before offering their products or services. The ongoing litigation in the Ripple case may shed some light on the definition of cryptocurrencies as a security, commodity or currency, but it may not provide an answer for other crypto-related products such as Bitcoin’s spot ETF – and in any case, the accuracy of the case may not be brought up before a body has adopted Securities and Exchange Commission decision on grayscale.
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Crypto companies argue that the evolution of the bitcoin market and a better understanding of digital assets should satisfy regulators, and as Craig Salem, Grayscale’s chief legal officer notes, “markets have gotten stronger since the first wave of ETFs were rejected in 2017.”