Grayscale told the SEC that approving its ETF application was effectively the agency’s only option.
After handily defeating the regulator in court, Grayscale sent a letter to the U.S. Securities and Exchange Commission (SEC) on Tuesday containing key information for the agency’s follow-up action.
In light of the court’s ruling, Grayscale stressed that the Commission no longer has reasons to continue to reject the launch of a Bitcoin spot ETF.
The SEC has no choice
According to Grayscale’s comment letter published on Tuesday, the firm encouraged the SEC to “expeditiously” approve a spot ETF as it sees “no reason” to treat a spot Bitcoin ETF differently from a futures ETF.
“If any other rationale could be advanced to attempt to distinguish between a spot bitcoin ETP and a bitcoin futures ETP…we believe it would have now appeared in one of the 15 Commission orders denying spot bitcoin filings,” Grayscale wrote.
Grayscale’s lawsuit against the SEC alleges that the agency’s apparent preference for a bitcoin futures ETF over a spot ETF is “arbitrary and capricious.”
Although the SEC argued that bitcoin futures markets face different risks than spot markets, the court ruled that it was “unreasonable” for the agency to “discount the obvious financial and mathematical relationship between spot and futures markets.”
The company also highlighted that its application to convert its Bitcoin Trust into a spot ETF has been waiting “nearly three times longer” as the SEC was allowed to extend its approval/rejection deadline. Grayscale’s filing was published in the Federal Register on November 8, 2021, after which the SEC delayed its decision to early July 2022 at the maximum.
Grayscale’s subsequent litigation has now resulted in the denial being vacated, although the SEC formally denied the application on June 29, 2022. “We question whether the denial order, which was later vacated in its entirety by the Court of Appeals, satisfies the Commission’s obligation to act within the time frame necessary to avoid a deemed approval,” Grayscale wrote.
Is a spot exchange regulatory agreement required?
Grayscale stressed that, assuming the SEC still has time to consider its decision, the agency’s delay in approval will continue to hurt the interests of existing GBTC investors, and that investors at large strongly prefer spot ETFs over futures ETFs.
Additionally, the company reminded the SEC that other recent spot ETF applicants are attempting to enter into custody-sharing agreements with Coinbase to satisfy the agency’s requirements. Grayscale sought a similar arrangement with the Chicago Mercantile Exchange (CME), claiming that CME alone would be sufficient for approval.
It wrote, “We believe that the Commission may not impose additional new requirements on spot bitcoin ETPs at this time to enter into supervisory sharing agreements with spot bitcoin markets.”
