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Grayscale questions SEC’s rejection of VanEck’s spot Bitcoin ETF application

The company claimed that SEC’s decision has been “arbitrary and capricious” considering that the agency already approved three Bitcoin futures ETFs.

Photo by Sergei Tokmakov Terms.Law of Pixabay

Thu, 02 Dec 2021, 07:48 am UTC

Grayscale Investments is questioning the U.S. Securities and Exchange Commission’s decision to reject VanEck’s spot Bitcoin ETF application. The company claimed that SEC’s decision has been “arbitrary and capricious” considering that the agency already approved three Bitcoin futures ETFs.

“The Commission has no basis for the position that investing in the derivatives market for an asset is acceptable for investors while investing in the asset itself is not,” Grayscale said in a letter addressed to SEC Secretary Vanessa Countryman dated November 29. “But having permitted the listing of multiple Bitcoin futures ETPs in the last several weeks, that is the policy decision the Commission would announce were it to deny NYSE Arca’s application to list [Grayscale Bitcoin Trust] BTC.”

In the letter, the company claimed that the SEC might have violated the Administrative Protections Act (APA) for its failure to treat the two Bitcoin ETF products the same, according to Cointelegraph. A spot Bitcoin ETF allows investors to trade on the current price of BTC. On the other hand, a Bitcoin futures ETF allows traders to speculate on the future price of Bitcoin via derivatives.

“It is, of course, foundational that the Commission—like any other federal regulatory agency—must treat like situations alike absent reasoned justification; indeed, this principle is reflected in the text of Section 6(b)(5) itself, which forbids exchanges from maintaining rules that unfairly discriminate between issuers,” Grayscale explained. “Bitcoin futures ETPs registered under the 1940 Act and spot Bitcoin ETPs that are not required or eligible to be so registered are the same in all relevant respects, but based on the analysis in the November 12, 2021 disapproval order, the Commission is treating them differently.”

The SEC rejected VanEck’s application saying that it was not consistent with the requirements stated in the Securities Exchange Act of 1934. Understandably, Grayscale is concerned with the decision as it has also applied in October to list GBTC as a Bitcoin spot ETF.

Grayscale expressed disagreement over the grounds for rejection. “We believe this rationale failed adequately to take account of significant regulatory and competitive developments since 2017 when the Commission first considered, and denied, a national securities exchange’s application to list and trade shares of a spot Bitcoin ETP,” Grayscale said.

“Although the Commission cited investor protections afforded by the 1940 Act as justification for disparate treatment, the 1940 Act’s protections do not address and thus are not relevant to the concern the Commission has repeatedly invoked to deny Rule 19b-4 applications for spot Bitcoin ETPs like BTC: market manipulation and fraud in the underlying,” the company added.

Grayscale's VP of legal, Craig Salm, said that the current BTC ETF landscape is discriminatory against GBTC shareholders and other investors looking for a way to gain Bitcoin exposure. “Fortunately, the Administrative Procedure Act (APA) exists to address situations just like this one — to govern the process by which federal agencies develop and issue regulations, ultimately to protect the American investor,” Salm said, according to The Block.

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