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The SEC noted that WisdomTree’s proposal failed to meet sufficient conditions of investor protection, fraud prevention, and price manipulation in the spot Bitcoin market.
On Tuesday, the US Securities and Exchange Commission (SEC) turned down WisdomTree’s proposal of introducing a spot Bitcoin ETF in the market. The SEC rejected the proposal after rolling down the proposal twice in March 2022 and August 2021.
Similar to other rejections in the past, the SEC noted that WisdomTree has not met sufficient conditions of investor protection, fraud prevention, and price manipulation in the spot Bitcoin market. The SEC has been rejecting multiple spot Bitcoin ETF proposals in the past. The securities regulator feels that the market isn’t ripe to handle fraud risks and manipulation.
As a result, there’s not even a single spot Bitcoin ETF currently trading in the market. Many analysts believe that the spot Bitcoin ETF could be a game changer for the crypto industry. It will give institutional players exposure to Bitcoin in a regulated environment. However, the SEC has turned down dozens of applications over the last two years.
Grayscale Slams the US SEC
The world’s largest crypto asset manager Grayscale Investments said that the US SEC has been acting arbitrarily in turning down spot Bitcoin ETFs.
Grayscale stated that the SEC’s rejection over concerns of fraud risks and market manipulation are “capricious” and “discriminatory”. The asset manager argues that the SEC is ok with having futures-based Bitcoin ETFs, however, they come with the same risks as posed by the spot Bitcoin ETFs. In their opening brief in the lawsuit against the SEC, Grayscale said:
“The test the SEC has applied to Bitcoin-related ETFs, and only Bitcoin-related ETFs, is flawed and has been inconsistently applied with a ‘special harshness’ to spot Bitcoin ETFs”.
The US Securities and Exchange Commission (SEC) has yet to reply to the allegation so far. Earlier this year, Grayscale sued the SEC for rejecting its proposal to turn its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Starting in 2013, GBTC filed to change its structure last year in October 2021.
The shares of the Grayscale Bitcoin Trust have been trading at a 35% discount over the spot Bitcoin price currently. The shift to a spot Bitcoin ETF would help to close the fund’s near-record discount to the net asset value. The ETF structure comes with a creation and redemption process which would help in keeping the fund’s price in line with the underlying holdings.