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(Kitco News) - Crypto fund manager Grayscale Investments has submitted a letter to the Securities and Exchange Commission (SEC) asking that the regulator approve all the recently filed spot Bitcoin (BTC) exchange-traded funds (ETF) at the same time so that no product has an advantage over the others.
Grayscale said approving proposals on an individual basis “would reflect a positive but sudden and significant change in the Commission’s application of the relevant statutory standard, and as such would improperly grant an unfairly discriminatory and prejudicial first-mover advantage to these proposals.”
For this reason, the firm is looking to have all spot BTC ETP applications, including previously rejected applications, approved simultaneously.
“An approval that promotes investor protection and fairness for issuers should therefore be made simultaneously with approval of all proposed spot bitcoin ETPs, including those such as the Trust whose Rule 19b-4 filings were previously disapproved after lengthy Commission consideration,” the firm wrote.
In June 2022, Grayscale filed a lawsuit against the SEC after the regulator denied its attempt to convert the Grayscale Bitcoin Trust (GBTC) to an ETF. The firm called the denial of its ETF application by the SEC “arbitrary,” and sought court approval to proceed with the conversion of GBTC to an ETF, which would be overseen and regulated by the SEC.
Thursday’s letter repeatedly referenced the SEC's approval of futures Bitcoin ETF products in its argument that the regulator should now approve the spot BTC ETF applications.
“Having determined the CME bitcoin futures market meets the Commission’s stated criteria for a ‘market of significant size’ in the context of bitcoin futures ETPs, the Commission is logically bound to reach the same conclusion in the context of the Trust and other spot bitcoin ETPs,” Grayscale said.
When the SEC approved the Chicago Mercantile Exchange (CME) bitcoin futures ETF, they said, “CME’s surveillance can reasonably be relied upon to capture the effects on the CME bitcoin futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of CME bitcoin futures contracts . . . indirectly by trading outside of the CME bitcoin futures market.”
Grayscale said this statement indicates “the Commission recognizes that CME’s surveillance can capture the effects of trading on bitcoin spot markets.”
“But, despite the Commission’s decisions advantaging competing bitcoin futures ETPs, the Commission has to date not agreed that any exchange seeking to list a spot bitcoin ETP has demonstrated that the CME bitcoin futures market is ‘of significant size’ for purposes of surveillance sharing over spot bitcoin,” the letter said.
The letter also discussed the addition of Coinbase as the exchange partner for the surveillance-sharing agreements (SSA) in the spot BTC ETF applications.
Grayscale highlighted the 2022 order rejecting their Rule 19b-4 filing in which the SEC expressed “skepticism that it could give any weight to market data from a group of spot bitcoin trading venues including Coinbase.”
In their ruling, the SEC stated that “neither the constituent group’s ‘adherence to the BitLicense program’ administered by the New York State Department of Financial Services nor its ‘adoption of various surveillance, monitoring, and other measures to address potential manipulative or fraudulent trading activity on its trading platform, is material to the Commission’s analysis’ of whether to approve a spot bitcoin ETP Rule 19b-4 filing,” the letter said.
“Since the Commission’s prior bitcoin futures ETP approval orders make clear that a surveillance-sharing agreement with a regulated market of significant size is sufficient on its own to satisfy Section 6(b)(5), those orders do not also require the listing exchange to enter into an agreement with a spot bitcoin trading venue – even though manipulative activity in the spot market can impact the futures market,” Grayscale argued.
This led the firm to conclude that “Any such additional burden for spot bitcoin ETPs would unfairly discriminate between issuers, contrary to the mandate of Section 6(b)(5) and the Administrative Procedure Act.”
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| Grayscale forms new trust to pursue spot Bitcoin ETF in the U.S. |
Grayscale said that since the SEC previously rejected the argument that an SSA with a spot BTC exchange would satisfy the regulator's requirements for approving a spot Bitcoin ETP, if they decide to approve one of the recently filed applications, they “must do so in a fair and orderly manner – a manner that prioritizes the interests of investors, in particular the nearly one million who currently hold shares in the Trust.”
“Prior to any such approval, we believe that under both the Administrative Procedure Act and the Exchange Act, the Commission would be required to afford the listing exchange for the Trust (and all other spot bitcoin ETPs whose Rule 19b-4 filings were previously disapproved) the opportunity to amend their Rule 19b-4 filings, so that all of these spot bitcoin ETP proposals can be approved simultaneously,” Grayscale said. “Principles of investor protection, administrative fairness, due process, reasoned decision-making, and avoiding unfair discrimination between issuers would require no less.”
As it stands now, the spot BTC ETF application from ARK Investments and 21 Shares is first in line for review by the SEC, with its review date scheduled for August 13. Despite being up first for review, the SEC has up to 240 days from the time that an application is listed in the Federal Register to make a final decision.
