Grayscale Answers to SEC, Says Bitcoin (BTC) Spot ETF Denial Is Illogical

Crypto hedge fund Grayscale tells the U.S. Securities and Exchange Commission (SEC) that Bitcoin (BTC) exchange-traded funds (ETFs) denial is “illogical.”

Responding to a briefing filed by the SEC last month, Grayscale says converting the Grayscale Bitcoin Trust (GBTC) into a spot BTC ETF would greatly benefit traders by unlocking value and increasing investor protection.

“For more than 850,000 investors, converting GBTC into a spot Bitcoin ETF would unlock more than $4 billion in value by providing the regulatory relief needed for the product to simultaneously create and redeem shares, enabling arbitrage to both premiums and discounts of the shares as compared to the net asset value.

This conversion would also subject GBTC trading to stricter regulatory standards and improve investor protection. The SEC’s unwillingness to push Bitcoin further into the regulatory perimeter through a spot Bitcoin ETF has prevented US investors from getting the Bitcoin investment exposure they both want and deserve.

Grayscale first sued the SEC in June 2022. In an October 2022 filing, the company claimed that the regulatory body was biased when it rejected the hedge fund’s bid for a Bitcoin ETF in June.

In the lawsuit, Grayscale alleges that the SEC’s approval of other BTC-related products, such as the approval of a BTC futures ETF on the Chicago Mercantile Exchange (CME), conflicts with the rejection of Bitcoin ETFs.

In the official lawsuit, Grayscale refers to the SEC’s decision to award a futures BTC ETF to CME based on its security level as “illogical” because the same type of security would be required to operate a BTC ETF.

“The Order in this case is arbitrary to the core. The central premise — that the surveillance sharing agreement with the Exchange’s CME provides adequate protection against fraud and manipulation in the Bitcoin futures market, but not the spot Bitcoin market — is illogical.

Any fraud or manipulation in the spot market would necessarily affect the price of Bitcoin futures, and therefore the intrinsic value of an ETP. [exchang-traded product] with either spot Bitcoin or Bitcoin futures, as well as the price investors pay for such ETP stocks.

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