ETF euphoria still reigns supreme in both crypto and finance, and aspiring Bitcoin investors are eagerly awaiting what will hopefully be the first ETF approved for spot markets.
Their spirits were lifted after regulators gave their blessing 2X volatility stocks start trading the first ETF in leveraged bitcoin futures on June 23. For many observers, the move was a step in the right direction towards the inevitable approval of a spot market ETF.
However, the news was more bittersweet for another competitor hoping for a chance to offer a spot ETF: Grayscale.
Donald Verilli, one of the attorneys representing Grayscale in its fight with the SEC, argued that approving the Volatility Shares ETF was at odds with his own stance on any fund that deals with spot markets.
“The fact that the commission has allowed leveraged bitcoin futures ETPs to trade demonstrates that the commission continues to arbitrarily treat spot bitcoin ETPs differently from bitcoin futures ETPs,” Verilli wrote in an article letter to the clerk of the US Circuit Court of Appeals in Washington DC on Monday.
For nearly a year, the wealth manager has been embroiled in a lawsuit against the Securities and Exchange Commission, which he alleges was unfair and arbitrary in its approval process. greyscale sued the SEC last June after the agency rejected its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot market ETF.
The SEC argued that Grayscale’s filing lacked a plan to monitor any impact of fraud or market manipulation on spot prices. Grayscale has denied this claim, countering that futures prices themselves come from the spot markets, a stance that supports the hearing of the federal judge The lawsuit drew some sympathy at a hearing in March.
For Grayscale, the Volatility Shares ETF’s approval was just further proof of the SEC’s inconsistency. In his letter, Verilli argued that by dealing with futures markets and using leverage to generate greater returns, the fund puts investors at greater risk than a spot ETF or a traditional futures ETF. This, he argues, should invalidate their rationale against Grayscale’s filing.
“While the Commission could theoretically correct its discriminatory treatment of spot bitcoin ETPs by revoking its approval for all bitcoin-based ETPs, the Commission’s apparent willingness to even allow a leveraged bitcoin futures ETP is a particularly high-risk version of a bitcoin futures product – makes it clear [it] has no intention of doing so,” Verilli said.
Volatility Shares officials declined to comment on Verilli’s arguments.
in a (n previous interview with decrypt, ETF co-founder and president Justin Young said it was Grayscale’s first application, which opened the door for new entrants like BlackRock to also seek a spot market product. He added that he believes approval of the Volatility Shares ETF could facilitate approval of such an ETF.
“I think it gets a lot of people’s attention thinking, if the SEC let through a leveraged bitcoin-related product, why on earth wouldn’t they let spot bitcoin through?” Young said.
In a Twitter thread, Grayscale seemed to agree somewhat with this view, noting that it’s not suggesting that products like the Volatility Shares ETF shouldn’t exist. The company instead insisted that it was motivated to oppose the SEC’s approval process.
“Ultimately, the excitement around these products confirms what we’ve been saying all along: that investors want exposure to $BTC with the protection of the ETF wrapper,” it reads.
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