The firm said the differences between a leveraged bitcoin futures ETF and a spot bitcoin ETF are not enough to hinder the latter.
ETF fever is still permeating the cryptocurrency and financial sectors, and potential Bitcoin investors are waiting with bated breath for what they hope will be the first spot market exchange-traded fund to be approved.
They were excited after regulators approved 2X Volatility Shares, the first leveraged Bitcoin futures ETF, to begin trading on June 23. For many observers, the move was a step in the right direction toward the inevitable approval of a spot market ETF.
However, the news was more bittersweet for another competitor hoping for a chance to offer a spot ETF: Grayscale.
Donald Verilli, one of the lawyers representing Grayscale in its fight with the SEC, argued that approving the Volatility Shares ETF would contradict its opposition to any fund that deals with the spot market.
“The fact that the Commission allowed the leveraged bitcoin futures ETP to begin trading suggests that the Commission continues to arbitrarily treat spot bitcoin ETPs differently than bitcoin futures ETPs,” Verilli wrote in a letter to the clerk of the U.S. Court of Appeals in Washington.
For the better part of a year, the asset manager has been embroiled in a lawsuit against the SEC, accusing it of an unfair and arbitrary approval process. Grayscale sued the SEC last June after the SEC rejected its application to convert the Grayscale Bitcoin Trust (GBTC) into a spot market ETF.
The SEC argued that Grayscale’s application lacked a plan to monitor the impact of fraud or market manipulation on spot prices. Grayscale rejected that argument, countering that futures prices themselves are derived from the spot market, a position that the federal judge hearing the lawsuit showed some sympathy for during a March hearing.
For Grayscale, the approval of the volatility stock ETF is just further proof of the SEC’s inconsistency. Verilli noted in the letter that by using leverage to play the futures market for greater returns, the fund exposes investors to greater risk than spot or traditional futures ETFs. He argues that this should invalidate their arguments against Grayscale’s application.
Verilli said, “While the Commission could theoretically correct its discriminatory treatment of spot Bitcoin ETPs by revoking its approval of all Bitcoin-based ETPs, the Commission’s apparent willingness to allow leveraged Bitcoin futures ETPs (a particularly risky version of Bitcoin futures products) makes it clear that it has no intention of doing so.”
A representative for Volatility Shares declined to comment on Verilli’s arguments.
Earlier, Justin Young, co-founder and president of the ETF, said it was Grayscale’s initial application that opened the door for new entrants such as BlackRock to also pursue cash market products. He added that he believed the approval of the volatility equity ETF could facilitate the approval of one of these ETFs.
“I think this raised a lot of people’s eyebrows and said, ‘If the SEC is allowing leveraged bitcoin-related products to go through, why aren’t they allowing spot bitcoin to go through?’” Yang said.
In a Twitter post, Grayscale seemed to agree to a degree, noting that it wasn’t claiming that products like the Volatility Shares ETF shouldn’t exist. Instead, the company insisted it was motivated by its public opposition to the SEC’s approval process.
“Ultimately, the excitement about these products supports what we have been saying all along: investors are eager to invest in BTC under the protection of an ETF wrapper,” it wrote.
