The asset manager’s flagship Bitcoin BTC tickers down $25,744 fund is being converted to a spot exchange-traded fund (ETF), and Grayscale has informed the Securities and Exchange Commission that it no longer has any legal justification to do so.
In response to the regulator’s legal defeat on the conversion of the Grayscale Bitcoin Trust (GBTC), Grayscale’s solicitors wrote to the SEC on 5 September to request a meeting.
The legal analysis previously adopted by the Commission
“Now that the Court of Appeals has ruled, there is no available rationale that would distinguish a Bitcoin futures ETP from a spot Bitcoin ETP under the legal analysis previously adopted by the Commission in rejecting spot Bitcoin ETPs,” the Commission stated in a statement following the Court of Appeals’ ruling. Grayscale added it believes the SEC should conclude there are “no grounds” for treating the GBTC differently from Bitcoin futures ETFs whose filings “the Commission has previously approved.”
On Aug. 29, a United States Appeals Court ruled against the SEC’s denial of Grayscale’s application to convert its GBTC to a spot Bitcoin ETF. In addition to the Exchange Act’s need that regulations be “designed to prevent fraudulent and manipulative acts and practices,” according to Grayscale, there should not have been any other justification for rejecting the conversion.
Even after Bitcoin futures ETPs started trading, Grayscale noted, “We are convinced that it would have shown up by now in one of the fifteen Commission rulings that rejected spot Bitcoin files. According to Grayscale, its fund conversion application has been languishing for almost three times as long as allowed by SEC regulations.
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The dichotomy between a futures product and a cash product
Joseph A. Hall, who also wrote Grayscale’s letter to the SEC in July pleading with it to accept all pending ETF applications at once, concluded his most recent letter with these words: “We think the nearly one million investors in the Trust deserve this level playing field as soon as possible.” The GBTC discount, which measures how much an ETF is trading above or below its net asset value, has decreased to 19.9% since the court’s verdict on August 29.
During the bottom of the bear cycle that followed the FTX crash in December 2022, the discount for GBTC was almost at a 50% negative value. Jay Clayton, a former chair of the U.S. Securities and Exchange Commission (SEC), has now said that the ultimate establishment of a spot bitcoin exchange-traded fund (ETF) is “inevitable” after the SEC deferred making a decision on ETF submissions from asset managers who control a combined $15 trillion until October.
Bitcoin is obviously not a security. Retail investors and institutional investors both want access to bitcoin, and, more crucially, some of our most dependable providers who are fiduciaries or have obligations of best interest want to offer this product to the general public. Therefore, in my opinion, approval is unavoidable,” Clayton told CNBC. “The dichotomy between a futures product and a cash product can’t go on forever.”
