Grayscale Pushes Again for SEC Approval to Become a Bitcoin ETF

Grayscale has made another bid to gain approval from the US securities watchdog to turn the world’s largest crypto investment vehicle into a fund that trades on major Wall Street exchanges.

The asset manager focused on a legal detail in a bid to bolster its application to the Securities and Exchange Commission to convert its $40 billion Bitcoin Trust into an exchange-traded fund, according to a letter sent to the regulator .

Grayscale’s move comes as the SEC deliberates whether to give the green light to US exchange-traded funds to hold bitcoin, rather than cryptocurrency-related derivatives, for the first time. The regulator said it would make a decision on Grayscale’s application by early July at the latest.

Several rivals have already been reprimanded for their attempts to open similar funds and Grayscale’s bet represents one of the crypto industry’s last hopes of launching such a product in the near future. Only three other similar crypto ETFs are in the queue for approval.

The SEC has pushed back on so-called spot crypto ETFs due to fears the coins trade on unregulated platforms where oversight is difficult and manipulation a constant problem. It has endorsed ETFs holding crypto futures, but those products trade on platforms overseen by US financial regulators.

Grayscale is betting that the SEC’s acceptance earlier this month of crypto futures vehicle Teucrium under the rules that would govern spot bitcoin ETFs could be used to bolster its case with the regulator.

In a letter submitted to the SEC this week, Grayscale said, “We believe the Teucrium order confirms the fundamental point. . .[that]when it comes to approving [exchange traded products]there is no reason to treat bitcoin spot products differently from bitcoin futures products.

Craig Salm, chief legal officer of Grayscale, added that as a result of Teucrium’s approval, the SEC “effectively lost the ability to rely on the distinction” between the rules governing futures ETFs and spot ETFs like reason to reject funds tied to physical bitcoin.

The SEC declined to comment.

Some compliance professionals remain skeptical whether Grayscale’s new legal gamble will pay off.

SEC chief Gary Gensler has argued that “largely unregulated” bitcoin markets raise issues of fraud and manipulation. He also called for crypto platforms to register with the agency and argued that most tokens are securities and fall under the jurisdiction of the SEC.

Amy Lynch, founder and president of FrontLine Compliance, a regulatory advisory firm, said SEC approval of cash bitcoin ETFs will remain difficult until issues such as pricing, valuation, custody and liquidity of funds are standardized and more transparent.

“Gensler should switch positions at this point,” added Lynch. “I don’t see him doing that unless there’s a light bulb moment with those filings that answers all the questions. And I think that’s a low probability.

But crypto players argue that the evolution of the bitcoin market in recent years should allay those worries.

“Markets themselves have become much more robust since the first wave of ETFs were turned down in 2017,” Salm said, adding that crypto exchanges have beefed up protections through increased trade oversight and use. of a technology similar to that of the American national exchanges.

Matt Hougan, chief investment officer at Bitwise Asset Management – which filed one of the pending applications for a fund holding bitcoin – said that while the maturing of the regulated CME spot bitcoin market was “the biggest factor importantly,” the broader crypto ecosystem had improved thanks to the launch of regulated ETFs overseas and the entry of more institutional players.

Timothy Spangler, a partner at Dechert, said it was unclear what other information the SEC would need to approve spot bitcoin ETFs when other regulators like Australia and Canada had approved such products.

These countries “seem to be able to get comfortable” with the idea that “bitcoin is a mature enough asset to be included in a publicly traded vehicle,” he said.

“I fear that the opposition to the inclusion of greater amounts of crypto in retail financial products is more philosophical than retail related,” Spangler added. “I don’t think it’s a game of thumbs.”

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Grayscale Pushes Again for SEC Approval to Become a Bitcoin ETF


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