Grayscale says new development bolsters its Bitcoin ETF spot case

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Such alleged arbitrary treatment is at the center of Grayscale’s lawsuit against the SEC, filed after the regulator on June 29, 2022 denied a request to convert the Grayscale Bitcoin Trust, known by the symbol GBTC, into a bitcoin spot ETP.

In its October 2022 opening brief, Grayscale argued that the SEC arbitrarily determined that a proposed rule change by NYSE Arca to list and trade shares of the trust was not designed to prevent fraud and manipulation, even though SEC-approved Bitcoin futures ETPs are exposed to exactly the same risks of fraud and manipulation.

Volatility Shares’ 2x Bitcoin Strategy ETF began trading on June 27, Verrilli’s letter says. The fund, which seeks to double the performance of the S&P CME Bitcoin Futures Daily Roll Index every day, is leveraged, the letter says.

“As a result, this exposes investors to an even riskier investment product than traditional exchange-traded bitcoin futures products,” Verrilli said in the letter, which also noted that the 2x Bitcoin Strategy ETF was “exposed to even more bitcoin market risk than the spot bitcoin ETP offered by Grayscale.”

The letter also referenced a registration statement for the 2x Bitcoin Strategy ETF, which stated that an investor “could potentially lose the full value of their investment in a single day.”

As part of federal appeals court proceedings, a rule allows a party to submit additional information to the court if something material happens after pleadings that strengthen their case, “so that’s what is that letter,” said Craig Salm, Chief Legal Officer of Grayscale. in an interview.

Grayscale left the courtroom after closing arguments in March “feeling very strong about our common sense and compelling,” Mr. Salm said. Grayscale is ensuring the court is aware of new developments in the case, which it says further strengthens its case, he said, adding that “on behalf of our investors, we must do our utmost possible to make sure we get the right result”. in this case.”

What the SEC would do if Grayscale won was a topic that came up during oral argument “and they have three options left,” Salm said. One would be to approve GBTC’s conversion to a bitcoin spot ETF — a term used colloquially because Grayscale’s product is technically an ETP — as well as to approve bitcoin spot ETFs offered by other issuers, a- he declared.

“Obviously we think that’s what the SEC should be doing,” Mr. Salm said.

A second option would be for the SEC to offer another reason to deny spot bitcoin ETFs, although if Grayscale wins the lawsuit, overcoming concerns about potential fraud and manipulation, it’s unclear what that might be, a he declared.

The third option would be to treat bitcoin spot ETFs and bitcoin futures ETFs the same way by choosing to “undo” bitcoin futures ETFs, Salm said. This option was also discussed in Mr. Verrilli’s letter.

“While the Commission could theoretically correct its discriminatory treatment of spot bitcoin ETPs by rescinding its approval of all bitcoin-based ETPs…the Commission’s apparent willingness to allow even a leveraged bitcoin futures ETP – a version particularly high risk of a bitcoin futures product – makes it clear that the Commission has no intention of doing so,” the letter states.

Therefore, “the only way to eliminate the Commission’s unequal treatment of bitcoin-based ETPs is to allow proposed spot bitcoin ETPs like Grayscale’s to begin trading,” Ms. Locked.

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