Grayscale Cries Foul Over SEC Approval of a Different Kind of Bitcoin ETF

ETF euphoria remains to be wafting via each the crypto and finance area, and would-be Bitcoin traders are holding their breath forward of what they hope would be the first authorized change traded fund for spot markets.

Their spirits have been lifted after regulators gave their blessing to 2X Volatility Shares to begin buying and selling the primary ETF in leveraged Bitcoin futures on June 23. For a lot of observers, the transfer was a step in the fitting course, towards the inevitable approval of a spot market ETF.

The information was extra bittersweet, nonetheless, for one more contender hoping for an opportunity to supply a spot ETF: Grayscale. 

Donald Verilli, one of many attorneys representing Grayscale in its battle with the SEC, argued that approving the Volatility Shares ETF ran opposite to its personal stance towards any fund coping with spot markets.  

“The truth that the Fee has allowed a leveraged bitcoin futures ETP to start buying and selling demonstrates that the Fee continues to arbitrarily deal with spot Bitcoin ETPs in another way than bitcoin futures ETPs,” Verilli wrote in a letter to the clerk for the U.S. Court docket of Appeals in Washington D.C. on Monday.

For the higher a part of a 12 months, the asset supervisor has been locked in a lawsuit towards the Securities and Trade Fee, which it accuses of being unfair and arbitrary in its approval course of. Grayscale sued the SEC final June after the company rejected its utility to transform its Grayscale Bitcoin Belief (GBTC) right into a spot market ETF.

The SEC argued that Grayscale’s utility lacked a plan to observe any impression on spot costs that got here from fraud or market manipulation. Grayscale has rejected this declare, countering that futures costs themselves are drawn from spot markets, a stance that the federal choose listening to the lawsuit confirmed some sympathy in direction of at a listening to in March.

For Grayscale, the approval of the Volatility Shares ETF was simply extra proof of the SEC’s inconsistency. In his letter, Verilli argued that by coping with futures markets utilizing leverage to realize greater returns, the fund was exposing traders to extra threat than a spot or conventional futures ETF would. This, he argues, ought to invalidate their rationale opposing Grayscale’s submitting.

“Whereas the fee may theoretically right its discriminatory remedy of spot bitcoin ETPs by rescinding its approval of all Bitcoin-based ETPs, the Fee’s obvious willingness to allow even a leveraged bitcoin futures ETP—a very high-risk model of a Bitcoin futures product—makes clear [it] has no intention of doing so,” mentioned Verilli.

Representatives from Volatility Shares declined to touch upon Verilli’s arguments. 

In an earlier interview with Decrypt, the ETF’s co-founder and president Justin Younger mentioned that it was Grayscale’s preliminary utility that cracked the door open to current entrants like BlackRock to additionally search a spot market product. He added that it was his perception that approval of the Volatility Shares’ ETF may facilitate approval for one. 

“I believe it brings to lots of people’s consideration the thought that if the SEC has let a leveraged Bitcoin linked product via, why on Earth would not they permit spot Bitcoin via?” Younger mentioned.

In a Twitter thread, Grayscale gave the impression to be in some settlement with this view, noting that it isn’t claiming that merchandise like Volatility Shares’ ETF mustn’t exist. The agency insisted as an alternative that it was motivated to talk out towards the SEC’s approval course of. 

“In the end, pleasure for these merchandise backs up what we’ve been saying all alongside: that traders are longing for $BTC publicity with the protections of the ETF wrapper,” it wrote.