By
Josh O'Sullivan
April 30th, 2024
According to Grayscale, the only way to eliminate SEC’s unequal treatment of BTC ETPs is “to allow proposed spot bitcoin ETPs like Grayscale’s to begin trading”.
One of the leaders in digital currency investing Grayscale Investments LLC has criticized the United States Securities and Exchange Commission (SEC) for approving a leveraged Bitcoin (BTC) exchange-traded fund (ETF). Previously, the SEC had rejected Grayscale’s spot Bitcoin ETF application. Now, Grayscale is suing the regulatory agency over a violation of the Administrative Procedures Act.
On June 27, Volatility Shares Trust’s leveraged Bitcoin futures ETF was listed on Cboe BZX Exchange, without the interference from SEC in the process. Meanwhile, Volatility Shares Trust was expecting a denial since SEC has a pattern of rejecting numerous crypto-linked ETF applications. Neither SEC nor the US Commodity Futures Trading Commission approved or disapproved the proposed ETF, and Volatility Shares Trust’s registration statement came into effect. The fund looks for investment returns that are equivalent to double the return of the CME Bitcoin Futures Daily Roll Index.
Observing the listing, Grayscale could not ignore the fact that the SEC has not approved any spot crypto ETFs but has approved ones tied to BTC futures. Back in June 2022, the SEC rejected Grayscale’s own proposal to convert its Bitcoin Trust into an ETF. Grayscale immediately sued the regulator, alleging the commission violated the Administrative Procedure Act and the Securities Exchange Act of 1934 by discriminating between issuers of the two types of ETFs on an “arbitrary and capricious” basis.
Yesterday, Grayscale lawyers notified the US Court of Appeals for the District of Columbia Circuit of the listing of Volatility Shares Trust’s leveraged BTC futures ETF.
In the letter, Grayscale’s lawyers stated:
“The fact that the Commission has allowed a leveraged bitcoin futures ETP to begin trading demonstrates that the Commission continues to arbitrarily treat spot bitcoin ETPs differently than bitcoin futures ETPs.”
They further added:
“While the Commission could theoretically correct its discriminatory treatment of spot bitcoin ETPs by rescinding its approval of all bitcoin-based ETPs, the Commission’s apparent willingness to permit even a leveraged bitcoin futures ETP – a particularly high-risk version of a bitcoin futures product – makes clear that the Commission has no intention of doing so.”
According to Grayscale, the only way to eliminate SEC’s unequal treatment of BTC ETPs is “to allow proposed spot bitcoin ETPs like Grayscale’s to begin trading”.
In addition, Grayscale has stated that Volatility Shares’ 2x Bitcoin Strategy ETF (or BITX) exposes investors to a much riskier investment product than traditional Bitcoin futures exchange-traded products (ETPs). The latter encompasses risks related to both the futures and spot Bitcoin markets. However, SEC believes that futures products are harder to manipulate. As the agency explained, they are based on prices from the CME, which is regulated by the Commodity Futures Trading Commission.