Grayscale asks to meet with SEC to discuss spot Bitcoin ETF approval after court ruling

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(Kitco News) – Digital asset management firm Grayscale has sent a letter to the Securities and Exchange Commission (SEC) requesting a sit-down with the regulator following last week’s ruling that the SEC must review the firm’s application to convert the Grayscale Bitcoin Trust (GBTC) to a spot BTC exchange-traded fund (ETF) after previously rejecting the application.

“We would appreciate the opportunity to meet with the staff of the Securities and Exchange Commission as soon as practical to discuss the way forward in view of recent developments in the Trust’s ongoing effort to convert to an exchange-traded product,” Grayscale said.

Grayscale told the SEC it has no legal reasoning left to block the conversion of GBTC to an ETF, and is looking to move the process forward as quickly as possible.

“Now that the Court of Appeals has spoken, there is no available rationale that would distinguish a Bitcoin futures ETP from a spot Bitcoin ETP [exchange-traded product] under the legal analysis previously adopted by the Commission in rejecting spot Bitcoin ETPs,” Grayscale said.

The SEC has repeatedly said that an exchange looking to list a Bitcoin-based ETP can meet its obligations under the Exchange Act by “demonstrating that the exchange has a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets,” the letter said.

“This is the test, and the Court of Appeals unequivocally determined that it is met: Grayscale has demonstrated its proposed bitcoin ETP is materially similar, across relevant regulatory factors, to the approved bitcoin futures ETPs,” Grayscale said. “First, the underlying assets – bitcoin and bitcoin futures – are closely correlated. Second, the surveillance sharing agreements with the CME are identical and should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures.”

The letter noted that the Rule 19b-4 filing for the Trust has been “pending for nearly three times the length permitted for Commission action under Section 19(b) of the Exchange Act,” and highlighted that according to Section 19(b)(2)(D) of the Act, “a proposed rule change is deemed approved by the Commission if the agency does not issue an order one way or the other within the statutory timeframe.”

Grayscale asked that the SEC consider three points moving forward.

“First, each day that passes without listing the Trust’s shares on NYSE Arca is another day when the Trust’s existing investors bear unjustified harm in the form of shares that trade at a substantial discount to net asset value,” Grayscale said. “This harm could be avoided if the Trust were treated the same as the bitcoin futures ETPs whose Rule 19b-4 filings the Commission has already approved.”

“Second, U.S. investors seeking access to regulated bitcoin investment products should not be forced into less efficient and more complicated product structures simply because these are the only product types yet to gain Commission approval,” the letter said. “Each day that passes, investors and spot bitcoin product issuers like Grayscale incur competitive harm by not benefiting from the treatment accorded to bitcoin futures ETPs – which, unlike Grayscale, can grow their assets under management using the time-tested ETP wrapper.”

For the third point, Grayscale pointed to the recent flurry of spot BTC ETF applications and the comment letters the firm sent in response to these filings.

“Grayscale’s letters explain that the Commission’s prior bitcoin futures ETP approval orders make clear that a surveillance-sharing agreement with the CME alone is sufficient to satisfy Section 6(b)(5) for bitcoin futures ETPs,” Grayscale said. “As a result, and following the reasoning of the Court of Appeals, we believe the Commission may not now impose an additional, new requirement on spot bitcoin ETPs for a surveillance-sharing agreement with a spot bitcoin market.”

Grayscale said that the Trust is “ready to operate as an ETP upon Commission approval,” and that they hope the SEC “will agree that the best use of resources now is for the Commission to issue an order approving NYSE Arca’s Rule 19b-4 filing and authorize the staff to work with Grayscale and NYSE Arca to finalize the prompt listing of the Trust’s shares.”

“We believe the Trust’s nearly one million investors deserve this fair playing field as quickly as possible,” the letter concluded.