“No justification for SEC to deny Bitcoin trust conversion into ETF
Greyscale has stated the SEC is not applying its standards evenly when dealing with spot Bitcoin ETFs and Bitcoin futures-based ETFs. The world’s largest crypto asset manager has begun to file its opening brief and challenged the U.S Securities and Exchange Commission and its decision against allowing the conversion of Grayscale’s Bitcoin trust into a Bitcoin ETF.
A Bitcoin ETF would create a legal way to trade the price of the asset and be accessible on familiar markets. An ETF is an investment vehicle that is publicly traded, like a stock but tracks asset performance via underlying assets and not a company, consider it to be like gold or oil. The value of the ETF rises and falls accordingly with the asset. A Bitcoin ETF would work in the same way, the ETF would track the current price of the asset and act within lockstep of the token.
Bitcoin is still very risky by utilizing a Bitcoin ETF investors wouldn’t need to worry about the minutiae of dealing with crypto. There would be no need for private keys, storage, wallets, security, and the such. The users would own shares in the ETF just like stock. An investor would still gain exposure to the crypto market without having to go through all the hassle involved with traditional trading in crypto. This all has a massive appeal to those that want to get into crypto, including institutional investors.
The Bitcoin ETF would be managed by a firm that buys and holds the actual Bitcoin, the price is pegged, or connected to the price of the asset in the fund. The asset is then listed on a traditional stock exchange and the investor would trade the ETF just like any other stock. This also offers other trading options like shorting the asset. This all sounds good but it should be noted that a Bitcoin ETF won’t pay out like a traditional one.
The SEC gave permission to some companies that wanted to open Bitcoin Futures ETFs, and Spot Bitcoin ETFs but not all. It has been quite the roller coaster for some that have wished to bring Bitcoin ETFs to their investor base.
- July 2013: The Winklevoss Bitcoin Trust files the first Bitcoin ETF proposal.
- June 2018: The SEC rejects Winklevoss’ second Bitcoin ETF proposal.
- October 2019: The SEC rejects Bitwise’s Bitcoin ETF proposal.
- February 2020: Wilshire Phoenix becomes the latest project to have its Bitcoin ETF project rejected by the SEC.
- September 2020: The world’s first Bitcoin ETF is listed on the Bermuda Stock Exchange.
- December 2020: VanEck files its latest proposal for a Bitcoin ETF, after pulling its previous proposals before formal rejection multiple times.
- February 2021: Canada’s first Bitcoin ETF launches, the Purpose Bitcoin ETF (BTCC). Two more would be approved in the same month: the Evolve Bitcoin ETF (EBIT) and the CI Galaxy Bitcoin ETF (BTCX).
Grayscale is still being denied the ability to do as such. In its filing with the U.S Court of Appeals or the District of Columbia Circuit, Grayscale has stated “ a fundamental norm of administrative procedure requires an agency to treat like cases alike” stating that the SEC is not treating the company the same as the ones it granted permission to.
Grayscale claims the financial regulator is acting “in excess of statutory authority.” In another statement Craig Salm, Grayscale’s Chief Legal Officer made the comment:
“The Administrative Procedure Act and Exchange Act require rules and regulations to be applied without favoritism for one type of product or another,”
The argument is that although Bitcoin may be relatively new the legal issue itself is pretty straightforward. Grayscale says the SEC has violated the APA’s most basic requirement, failing to justify the different treatment of Bitcoin futures ETFs and spot Bitcoin ETFs.
A Hard Battle
Grayscale has been fighting for the conversion of GBTC, which is the largest bitcoin fund in the industry. The team wants to turn it into a spot Bitcoin ETF and has used the argument that it would help solve the issue of the massive discount that GBTC shares have been trading at since February.
The SEC has stated that the company has not done enough to protect investors and thus has denied the request. With that decision Grayscale quickly set out to sue the SEC as the CEO of Grayscale, Michael Sonnenshein stated that he plans to use all of his resources to advocate for investors and “ equitable regulatory treatment of Bitcoin investment vehicles.
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