Grayscale Investments has asked the Securities and Exchange Commission (SEC) to rethink its decision to turn the Grayscale Bitcoin Trust into an Exchange-Traded Fund (ETF). This action comes after the SEC’s earlier rejection was overturned by the U.S. Court of Appeals for the D.C. Circuit on August 29.
Notably, Davis Polk’s statement on Grayscale’s behalf states that the SEC should find no reason to distinguish the Grayscale Bitcoin Trust from existing Exchange-Traded Products (ETPs) that invest in Bitcoin futures. Given the SEC’s track record of rejecting spot ETF applications, the legal team contends that any meaningful difference between spot and futures-based Bitcoin ETFs would have arisen by now.
Grayscale further emphasizes that their proposed Bitcoin ETF meets the SEC’s criteria for surveillance-sharing agreements with regulated markets. They say their ETF is “materially similar, across relevant regulatory factors, to the approved Bitcoin futures ETPs.” As a result, Grayscale insists on passing the complete surveillance-sharing agreement test, relying on similar agreements with the Chicago Mercantile Exchange (CME) to detect fraudulent conduct.
Furthermore, the legal team stressed the strong relationship between Bitcoin’s underlying assets and futures, suggesting that regulators should treat both similarly.
However, the letter exposes a startling lack of communication between the SEC and Grayscale since the court order a little more than a week ago. Grayscale continually requests the SEC’s participation in negotiating the following steps, emphasizing the agency’s apparent stalling tactics. CEO Michael Sonnenshein expressed his displeasure on Twitter, pledging his company’s continuous communication with the SEC.
According to Scott Johnsson, a finance lawyer at Davis Polk, the SEC is under additional pressure to approve Grayscale’s application. “I expect the SEC to face the music absent truly deranged decision-making,” he said.
Bloomberg analyst James Seyffart put it succinctly: “Grayscale’s letter to the SEC can be summed up as: ‘Yo, what’s good?'” ‘Please call us back.'”
While Grayscale’s optimism is apparent, it’s important to note that the court’s decision only requires a review of the SEC’s denial, not its approval. As a result, the crypto community and investors are eagerly awaiting the SEC’s response.
Bitcoin trades at $26,766, adding another degree of urgency to this high-stakes battle.