SEC Approval of Riskier Bitcoin ETF Draws Criticism from Grayscale

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Lawyers for digital asset manager Greyscale have criticized the US Securities and Exchange Commission (SEC) for approving a bitcoin-based exchange-traded fund (ETF) amid a lawsuit against the regulator over the company's rejection of its position. Bitcoin ETF app.

In a letter to the U.S. District Court of Appeals for the District of Columbia Circuit, the attorneys objected to the SEC's approval of the backed ETF, which it believes is “higher risk” than traditional grayscale bitcoin-based futures trading products.

The SEC's latest action, which showed the letter on Twitter, argued that it represents discriminatory treatment of spot Bitcoin ETPs.

Today, our attorneys filed a letter with the D.C. Circuit highlighting the difference between the SEC's approval of spot bitcoin ETFs like $GBTC and their continued approval. Let's dive deeper. 🧵/6 pic.twitter.com/z7WyGBthhT

— Grayscale (@Grayscale) July 10, 2023

Grayscale attorneys have suggested that the SEC may rescind its approval of all Bitcoin-based ETPs to correct the alleged discrimination, and the commission has made it clear that it has no intention of doing so:

To be clear, we're not saying such products shouldn't exist. Instead, we are emphasizing that there is no good reason to continue approving spot products when used futures products are allowed to trade. 5/6

— Grayscale (@Grayscale) July 10, 2023

The SEC last year rejected Grayscale's application to convert Bitcoin Trust into an ETF, prompting the firm to file an appeal against the agency alleging violations of the Administrative Procedures Act.

This prompted Grayscale CEO Michael Sonnenschein to tell Bloomberg, “I think all options are on the table,” when asked if Grayscale would file a lawsuit against the SEC.

Grayscale did this: the Commission “failed to apply uniform treatment to similar investment vehicles; [acting] arbitrarily and recklessly”.

The lawsuit between Grayscale and the SEC, which was heard in March in D.C. Circuit Court, is expected to be concluded by the end of the year.

Viewed as a high-risk activity by legal group Greyscale, the SEC's endorsement of a Bitcoin ETF raises questions about the consistency of the regulator's decision-making.

“While the Commission could theoretically redress the discriminatory treatment of point Bitcoin ETFs by revoking approval of all Bitcoin-based ETFs […] The fact that the commissions are willing to allow a leveraged bitcoin futures ETP — especially a high-risk bitcoin futures product — makes it clear that the commission has no intention of doing so.

The SEC, however, has not publicly responded to Greyscale's latest lawsuits:

“Thus, the only way to avoid the commission's unequal treatment of bitcoin-based ETPs is to allow proposed bitcoin ETPs, such as Grayscales, to begin trading.”

However, the SEC has yet to come around to the idea of ​​a Bitcoin ETF. The SEC recently rejected Bitcoin ETF applications from several firms on June 30, saying the applications were not “sufficiently clear and comprehensive.”

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