Grayscale: SEC has “no basis” to reject Bitcoin Spot ETF

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Earlier this month, the U.S. Securities and Exchange Commission officially confirmed that the government agency rejected VanEck’s Bitcoin ETF proposal.

The SEC has a point there. When it comes to Bitcoin futures ETFs, there are a lot of factors to take into consideration, obviously – the pros and cons. Up to this point, the ProShares Bitcoin Strategy ETF is likely the first bitcoin futures-based ETF to win approval. As for VanEck’s Bitcoin ETF, the decision is unfortunately a rejection.

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SEC Gave A Thumbs Down

Explaining the reason behind its act, the SEC stated that VanEck’s Bitcoin ETF based on free market prices will lead to numerous potential risks such as scams and price manipulation. In careful consideration, the fund will cause damage to investors, instead of bringing benefits.

VanEck is a New York-based asset management and investment firm that filed an ETF application in December 2020 and has received delays from the SEC. On November 9, the application was officially rejected by the SEC.

According to the SEC, Bitcoin-listing exchanges have attempted to demonstrate that sharing data for monitoring and other purposes is qualified to prevent fraud and price manipulation in the traditional Bitcoin market, but it is still inadequate.

The ETF is a type of investment that allows investors to purchase shares representing underlying assets such as gold, real estate, and foreign currencies, among others. A Bitcoin ETF will make it possible for investors to gain access to Bitcoin without having to deal with the hassle and expense of complicated security and storage management.

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Over the years, the SEC has repeatedly rejected applications for a traditional Bitcoin-based ETF, recently the SEC has given a thumbs up to Bitcoin ETFs based on futures market prices.

These Bitcoin Futures ETFs have been incredibly successful in the United States; in fact, ProShares’ Bitcoin Futures ETF hit $1 billion in trading volume on its first day of trading on the New York Stock Exchange (NYSE), just one day after it was launched and listed on the NYSE.

The news that the SEC had rejected VanEck’s Bitcoin ETF caused the price of Bitcoin on the spot market to plummet below $63,000, causing the price of the entire market to fall as a result.

Grayscale’s Response

Grayscale Investments has filed a complaint with the US Securities and Exchange Commission in response to the SEC’s recent rejection of VanEck’s spot Bitcoin ETF.

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On November 29, the operator of the Grayscale Bitcoin Trust (GBTC) sent a letter of complaint to SEC Secretary Vanessa Countryman, alleging that the SEC has “no basis” to reject Bitcoin Spot ETFs. There are only three Bitcoin futures ETFs that won the approval, including: ProShares Bitcoin Strategy ETF (BITO), Valkyrie Bitcoin Strategy ETF (BTF), and VanEck’s Bitcoin.

“At Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset,” stated by Dave LaValle, Global Head of ETFs at Grayscale Investments.

According to Grayscale, the SEC lacks a firm foundation for stating unequivocally that investing in the derivatives market for an asset is acceptable to investors while investing directly in the asset is not. The firm contends that the SEC violated the Administrative Procedure Act (APA) by failing to treat two Bitcoin ETF products equally.

A Bitcoin Futures ETF is a form of speculation based on the future price of Bitcoin (BTC) using derivatives, whereas a Bitcoin Spot ETF allows traders to trade at the current price of BTC, operating similarly to directly holding the asset.

Grayscale’s reaction is an attempt to minimize the chances of future rejection. In October, the company formally filed an application to launch a Bitcoin ETF. The SEC’s denial of VanEck’s application has raised concerns that a similar situation will occur with Grayscale.

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Author: Nicholas Say


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