Grayscale on why the SEC should approve a Bitcoin spot ETF

• The SEC recently approved three Bitcoin Futures ETFs, but is yet to allow one that tracks the cryptocurrency’s spot market price.
• A spot ETF would allow direct exposure to BTC, with investors tracking the current spot market price of the cryptocurrency.
• For its rejection of past spot ETF applications, the SEC has maintained the crypto sector is not ready given the potential for consumers to be exposed to fraud and price manipulation.

Grayscale has told the US Securities and Exchanges Commission (SEC) that its decisions against spot Bitcoin exchange-traded funds (ETFs) is incongruous with the regulator’s other actions related to Bitcoin futures ETFs.

In a letter the investment management firm sent to Vanessa Countryman, the SEC’s secretary, Grayscale points out some of the reasons it says explains why the securities watchdog has “no basis” to keep rejecting Bitcoin spot ETFs.

Grayscale’s letter comes days after the SEC once again rejected another physically-settled BTC exchange-traded fund, adding the proposal by VanEck to a long list of applications thrown in the dustbin.

According to the firm, which has applied to have its flagship Bitcoin Trust (GBTC) approved as a spot-based exchange-traded product (ETP), questions why the regulator has seen it fit to approve futures-based bitcoin ETFs and not one that tracks the actual cryptocurrency’s spot price.

Over the past few weeks, the SEC has allowed investments in the ProShares, Valkyrie, and VanEck futures-based ETFs. Incidentally, the approvals came on the back of comments from SEC Chair Gary Gensler that appeared to favour futures-based over spot-based Bitcoin ETFs.

“The Commission has no basis for the position that investing in the derivatives market for an asset is acceptable for investors while investing in the asset itself is not,” the firm’s letter reads.

Per Grayscale, and in reference to its NYSE Arca BTC filing, the regulator would be taking exactly the above position if it goes ahead to deny the application having already greenlighted the three Bitcoin futures products.

Grayscale believes approving the futures-based products and rejecting the spot-based applications violates the Administrative Protections Act (APA).

On 12 November, the Commission rejected the VanEck spot Bitcoin ETF, with reasons largely premised on the failure of the listing exchange to comply with the rules and requirements set out in Securities Exchange Act of 1934 (Exchange Act). Specifically, the SEC holds the view that the crypto market still cannot “prevent fraudulent and manipulative acts and practices.”

The letter states that the SEC’s grounds for rejecting Bitcoin spot ETFs follow a rationale that fails to “take account of significant regulatory and competitive developments since 2017” the first time the Commission rejected a spot BTC exchange-traded fund.

Grayscale wants the regulator to approve its application to list and trade BTC on the NYSE, noting that despite the cryptocurrency becoming extremely popular as an investment asset, US investors have no access to a product that closely reflects its spot prices.

The SEC is expected to give its initial verdict on the Grayscale BTC product before the end of the year.