Grayscale does not seem to want to give up on the hot topic of Bitcoin (BTC) Spot ETFs. As approval rejections multiply, the asset manager has made known its willingness to take the Securities and Exchange Commission (SEC), the US financial regulator, to task.
Grayscale to challenge SEC ruling on Spot ETFs
Just 24 hours ago, the SEC again refused approval for a Bitcoin (BTC) Spot ETF, i.e. one that replicates the price of the cryptocurrency.
The American financial regulator invokes the same reasons as before for not authorising this index fund: the impossibility of preventing fraudulent manoeuvres and possible price manipulation.
Without necessarily coming to the rescue of its competitors, the asset manager Grayscale does not appreciate the SEC’s justifications.
While the company also wants to apply for approval of its own ETF, it prefers to take the lead by already challenging the SEC’s previous decisions.
Grayscale says SEC violates US law
The main bone of contention is still the same: the distinction made by the SEC between Bitcoin ETFs based on futures contracts (Futures) and Bitcoin ETFs replicating the market price (Spot).
For the US financial regulator, the former are more secure investments than the latter and are therefore allowed. However, this argument is more than contested by Grayscale, which finds it “arbitrary and capricious”. As a result, the SEC would be in violation of the Administrative Procedure Act (APA).
The APA requires the SEC to treat similar situations in a similar manner. In this case, identical investment products must be treated identically.
Nevertheless, Grayscale believes that the SEC treats identical investment products, namely the Bitcoin Futures ETF and the Bitcoin Spot ETF, differently.
Shout out to the Grayscale legal team for invoking the APA argument for the SEC to approve a BTC spot-based ETF. https://t.co/OEUbuzu2eO
– Allen Au (@AllenAu11) December 1, 2021
Grayscale confronts SEC with contradictions on ETFs
Although the outcome of this Grayscale vs SEC case is unknown, the asset manager’s arguments seem at first glance to be valid. Without going into the bowels of the APA, the two types of ETFs are not governed by the same section according to the SEC.
Above all, the arguments put forward by the SEC are strange. Futures contracts are derivatives, purely speculative. Thus, Bitcoin futures contracts speculate on the future price of the currency.
In other words, futures contracts are inherently risky products. Moreover, they attract short-term investors and are addicted to leverage, unlike the spot market where there are many hodlers.
The conclusion is simple: Bitcoin futures are riskier than investing directly in the market. It is therefore difficult to understand why the SEC favours one much riskier ETF over another.
