Grayscale Responds to SEC, Says Spot Bitcoin (BTC) ETF Denial Is Illogical

Crypto hedge fund Grayscale tells the U.S. Securities and Exchange Commission (SEC) that its denial of Bitcoin (BTC) exchange-traded funds (ETFs) is “illogical.”

In response to an SEC filing last month, Grayscale says converting the Grayscale Bitcoin Trust (GBTC) to 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 more than $4 billion in value by providing the regulatory relief needed for the product to simultaneously create and redeem shares, enabling the arbitrage to treat both stock premiums and discounts as relative to the net asset value.

This conversion would also subject GBTC trading to enhanced regulatory standards and enhance investor protection. The SEC’s reluctance to bring Bitcoin further into the regulatory perimeter via 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 company alleged the regulator 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 endorsement of other BTC-related products, such as its endorsement of a BTC futures ETF on the Chicago Mercantile Exchange (CME), is inconsistent with its rejection of Bitcoin ETFs.

In the official court filing, Grayscale refers to the SEC’s decision to grant a BTC futures ETF on CME based on its level of security as “illogical” because the same type of security would be required to operate a BTC ETF. .

“The Order in this case is arbitrary in its essence. Its central tenet – that the Exchange’s Supervisory Sharing Agreement with the CME provides adequate protection against fraud and manipulation in the Bitcoin futures market, but not in the Bitcoin spot market – is illogical.

Any fraud or manipulation in the spot market would necessarily affect the price of Bitcoin futures, thereby affecting the net asset value of an ETP [exchang-traded product] holding bitcoin futures or bitcoin spot contracts as well as the price investors pay for the shares of such ETP.

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