SEC should ‘expeditiously’ approve GBTC conversion, says Grayscale

After notching a court win over the SEC last week, Grayscale Investments has asked to meet with the agency “as soon as practicable to discuss the way forward” for its planned bitcoin ETF.

DC Circuit Court of Appeals judges determined in a ruling last week that the SEC’s decision to approve bitcoin futures funds — but not Grayscale’s proposed conversion of its Bitcoin Trust (GBTC) to an ETF — was “arbitrary and capricious.”

Joseph Hall, partner at Davis Polk & Wardwell, a law firm representing Grayscale, wrote in a Tuesday letter to the SEC that “there are no grounds” for the regulator to treat GBTC differently than bitcoin futures funds. 

He added the SEC should “move expeditiously to approve the trust’s Rule 19b-4 filing,” a form used to inform the SEC of a proposed rule change.  

An SEC spokesperson told Blockworks last week that the regulator was “reviewing the court’s decision to determine next steps.” The commission did not immediately return a request for comment on the new letter. 

The SEC has previously cited concerns over fraud and manipulation in the underlying spot market. But the correlation between bitcoin futures prices and spot market prices shows that “fraud in the spot market would present identical problems for a bitcoin ETP and a bitcoin futures ETP,” according to last week’s court decision.  

Read more: What the judges said: unpacking the Grayscale court ruling 

The favorable court ruling for Grayscale does not compel the SEC to approve GBTC’s conversion to an ETF. Rather, it informs the commission that it can’t deny the conversion on the reasons it previously used.

“If any other reason could be offered in attempting to differentiate spot bitcoin ETPs from bitcoin futures ETPs — whether based on the Exchange Act’s requirement that rules be ‘designed to prevent fraudulent and manipulative acts and practices’ or otherwise — we are confident that it would have surfaced by now in one of the [15] commission orders that rejected spot bitcoin Rule 19b-4 filings even after bitcoin futures ETPs began trading,” Hall said in the letter.

Grayscale Chief Legal Officer Craig Salm said in an interview with Bloomberg last week he was confident in a Grayscale spot bitcoin ETF’s ability, if approved, to compete with proposed products by competitors such as BlackRock and Fidelity.   
Hall’s latest letter comes after the lawyer told the SEC in a July letter that approving certain spot bitcoin ETF proposals before others would give the first funds an “unfairly discriminatory and prejudicial first-mover advantage.”

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