Grayscale Investments has sent a compelling letter to the US Securities and Exchange Commission (SEC), urging the regulatory body to reevaluate its stance on the Grayscale Bitcoin Trust’s conversion into an Exchange-Traded Fund (ETF).
The letter, penned by Davis Polk on behalf of Grayscale, highlights the decision by the US Court of Appeals for the D.C. Circuit from August 29 to vacate the SEC’s previous disapproval order. Grayscale’s legal team emphasizes, “After the Commission has had the opportunity to fully analyze the court’s opinion in light of the record… we believe the Commission should conclude that there are no grounds for treating the Trust differently from ETPs that invest in Bitcoin futures contracts.”
Grayscale’s argument hinges on the assertion that their proposed product is not materially different from existing Bitcoin futures ETFs. They argue that any potential differences between spot ETFs and futures-based products “would have surfaced by now” given the SEC’s history of rejecting spot ETF applications.
They argue that the Commission’s consistent explanation for rejecting spot Bitcoin ETFs was based on the exchange’s ability to demonstrate a comprehensive surveillance-sharing agreement with a regulated market. Grayscale asserts that they have met this test, pointing out that their proposed Bitcoin ETF is “materially similar, across relevant regulatory factors, to the approved Bitcoin futures ETPs.”
Furthermore, Grayscale’s legal team underscores the correlation between the underlying assets of Bitcoin and Bitcoin futures. They also highlight the identical surveillance sharing agreements with the Chicago Mercantile Exchange (CME), which should be equally effective in detecting fraudulent or manipulative conduct in both markets.
SEC Continues Stalling Tactics On Bitcoin Spot ETF
Ultimately, the letter also provides some insight into the fact that there has likely been no contact between the SEC and Grayscale since the ruling eight days ago. Several times, Grayscale asks the agency to get in touch to discuss next steps:
On behalf of our client Grayscale Investments, sponsor of Grayscale Bitcoin Trust (BTC), we would appreciate the opportunity to meet with the staff of the Securities and Exchange Commission as soon as practical to discuss the way forward in view of recent developments.
The agency apparently continues to persist with its stalling tactics. CEO Michael Sonnenshein took to Twitter to express Grayscale’s commitment, stating, “This afternoon, our legal team submitted a comment letter to GBTC’s 19b4 application on behalf of all Grayscale investors. We look forward to continuing to have a productive dialogue with the SEC as we pursue next steps on GBTC’s conversion.”
Scott Johnsson, a finance lawyer at Davis Polk, also weighed in on the matter, suggesting that the SEC is under pressure to approve Grayscale’s application. He noted, “Putting pressure on the SEC to quickly approve rather than search for new ways to differentiate with futures. As noted in the letter, they should have surfaced in other denials by now, if there was valid grounds […] I expect SEC to face the music absent truly deranged decision-making there.”
James Seyffart, a Bloomberg analyst, humorously summarized Grayscale’s letter, tweeting, “Grayscale’s letter to the SEC from their lawyers can be summarized as: ‘Yo, what’s good? Call us back.’”
While Grayscale’s letter exudes confidence, it’s essential to note that the court’s decision only mandates the SEC to review its rejection, not necessarily approve it. The crypto community and investors will be keenly watching the SEC’s next move in this high-stakes battle for a Bitcoin Spot ETF.
At press time, BTC traded at $26,766.