Grayscale Investments has sent a letter to the US Circuit Court of Appeals asking how the SEC can allow a 2x leveraged bitcoin ETF to be approved but not a spot bitcoin ETF.
An attorney for Grayscale Investments sent a letter to a U.S. District Court questioning the SEC’s refusal to allow trading of Grayscale’s Bitcoin ETF (Exchange Traded Fund).
On Monday, Donald B. Verilli, Jnr. sent a letter to US Circuit Court of Appeals Judge Mark Langer noting that the US Securities and Exchange Commission (SEC) has approved trading of Volatility Shares’ 2X Bitcoin Strategy ETF (BITX).
Today, our attorneys filed a letter with the DC Circuit highlighting the discrepancy between the SEC’s approval of a leveraged #bitcoin futures ETF and its continued denial of approval of spot bitcoin ETFs like $GBTC. Let’s dive deeper. ๐งต/6 pic.twitter.com/z7WyGBthhT – Grayscale (@Grayscale) July 10, 2023
Grayscale applies for Spot Bitcoin ETF
Verilli’s questions come after Grayscale filed a filing to convert its spot bitcoin trust into a spot bitcoin ETF, to which the SEC replied no.
Grayscale believes that BITX is a riskier product than one that regulators refuse to allow, and questions the rationale behind allowing trading in a riskier product but denying trading in a safer product. Grayscale questions why riskier products get regulatory approval
In the letter, Verilli argued:
This gives investors an even riskier investment product than the traditional Bitcoin futures exchange-traded products. . . which include risks associated with the futures and spot bitcoin markets.
Noting that the 2X Bitcoin Strategy ETF aims to double the performance of the S&P CME Bitcoin Futures Daily Roll Index each day, he emphasized that it is leveraged.
Verilli also cited BITX’s registration statement, which clarifies that the product can result in massive losses if it gets into the hands of those who do not have sufficient knowledge about it. In its statement, BITX acknowledged that its product is suitable for “informed investors”.
Verilli also argued that approving the Volatility Shares ETF contradicts the SEC’s view against any fund that engages in the spot market.
He wrote:
The fact that the Commission allowed a leveraged bitcoin futures ETP to begin trading shows that the commission continues to arbitrarily treat spot bitcoin ETPs differently from bitcoin futures ETPs. The SEC’s arguments lack consistency
The SEC’s denial of Grayscale’s filing was based on the lack of a proper plan to monitor the impact of fraud and market manipulation on spot prices. Grayscale dismissed the SEC’s statement, saying that futures prices themselves are derived from spot markets.
The SEC’s rejection of the Volatility Shares ETF demonstrates the agency’s inconsistency. Verilli argued in his letter that the fund exposes investors to greater risk than they would with a spot ETF or a traditional ETF by leveraging futures markets to generate higher returns. Mr. Verilli claims his argument was intended to invalidate the SEC’s reason for denying Grayscale’s filing.
Verilli explained:
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 leverage a bitcoin futures ETP makes it a particularly risky version of a bitcoin – Futures product – allow this to nullify clearly [it] has no intention of doing so.
Disclaimer: This article is for informational purposes only. It is not offered or intended to be legal, tax, investment, financial or other advice.
Comments are closed.