Asset management firm Grayscale Investments is urging the SEC not to approve any of the recent spot bitcoin ETF applications in isolation, arguing this would unfairly advantage those specific applicants.
In a letter to the SEC on Thursday, Grayscale asserted that surveillance-sharing agreements between fund sponsors and Coinbase should not be a prerequisite for approving a spot bitcoin ETF. The company also maintained the SEC already has sufficient oversight ability under current standards.
No Need for Extra Exchange Surveillance
The SEC is reviewing a new crop of applications for spot bitcoin exchange-traded funds (ETFs) from asset managers including BlackRock, Ark Invest, Invesco, Fidelity, VanEck and Valkyrie. The regulator has yet to greenlight any spot bitcoin ETFs, while rejecting Grayscale’s proposal to convert its Bitcoin Trust (GBTC) into an ETF.
Coinbase recently agreed to share surveillance data on its crypto exchange with several of these ETF applicants. Proponents argue this transparency helps assuage SEC concerns around manipulation and fraud in bitcoin markets.
However, Grayscale contends these agreements are neither new nor necessary for SEC approval. The company’s lawyer Joseph Hall wrote that Coinbase is not a registered securities exchange or futures exchange, so its data sharing is irrelevant under current SEC standards for allowing bitcoin ETFs.
“The possibility of a surveillance-sharing agreement between a listing exchange and a spot bitcoin trading venue is not a new idea,” Hall stated.
Current Standard Enables Approval Already
Hall asserted the SEC could approve any spot bitcoin ETF right now using the same framework it utilized to greenlight bitcoin futures ETFs. Trying to raise the bar only for recent applications would unfairly give them a “first-mover advantage,” he claimed.
If the SEC does intend to finally approve spot ETFs, Grayscale urged they include previously rejected applications like GBTC in the same decision. Hall said this would “avoid unfair discrimination.”
“The company supports a regulatory approval that would facilitate the approval of all spot bitcoin ETF proposals,” he added.
Skepticism Remains From Key Figures
Grayscale’s letter comes as SEC Chair Gary Gensler yet again expressed doubts around crypto markets when asked Thursday about the pending spot ETF proposals.
Gensler highlighted issues with fraud and manipulation. His comments suggest the SEC still harbors significant concerns, despite Coinbase’s surveillance data sharing arrangement with several applicants.
Earlier this month, Grayscale accused the SEC of biased treatment after approving a leveraged bitcoin futures ETF but not a spot bitcoin vehicle. The company has an ongoing lawsuit against the SEC regarding its ETF rejection.
Unless Gensler has a sudden change of heart, Grayscale’s pessimism about prospects for an imminent spot bitcoin ETF approval seems well-founded. The SEC continues applying stricter standards to physical bitcoin products compared to derivatives. But with Grayscale and others challenging this differential treatment, the regulator may eventually have to relent or further justify its hesitancy.
