Grayscale Investment’s lawyers have shot off another letter to the SEC making their case for approval to convert GBTC to a spot bitcoin ETF.

Grayscale Investments, the world’s largest manager of digital assets, has made yet another effort to get the SEC to approve its application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF. The legal gambit, in the form of a letter to the SEC by Grayscale’s legal counsel Davis Polk & Wardwell, argues that the regulator’s recent approval of the Teucrium Bitcoin Futures Fund set up a precedent for approving Grayscale’s own spot-based bitcoin ETF. (FT)

Teucrium Bitcoin Futures Fund

The SEC recently approved the Teucrium Bitcoin Futures Fund which filed under the “33 Act” (or the Securities Act of 1933) and the “34 Act” (or the Securities Exchange Act of 1934) – not under the “40 Act” (the Investment Company Act of 1940) that the SEC approved all previous bitcoin futures ETFs under.

Intriguingly, the 34 Act would apply to the Grayscale spot ETF under application.

In this respect, Davis Polk & Wardwell wrote:

“We believe the Teucrium order confirms the fundamental point made in our November 29, 2021 letter in support of the above-referenced proposal: when it comes to approving ETPs, there is no basis for treating spot Bitcoin products differently from Bitcoin futures products.”

The SEC has steadfastly refused to approve a spot bitcoin ETF (a fund that would physically hold its bitcoin), choosing instead to approve bitcoin futures ETFs (funds that hold bitcoin futures in their portfolio). The SEC apparently prefers the latter because the futures contracts are traded on exchanges regulated by the Commodities Futures Trading Commission. On the other hand, the SEC cites risks from fraud and manipulation at exchanges that trade the bitcoin cryptocurrency itself.

However, it is Grayscale’s point that the impact of an adverse event on the spot market would affect both spot and futures ETFs.

“Because both spot and futures-based Bitcoin products face exposure to the same underlying Bitcoin market, any fraud or manipulation in the underlying market will affect both products in the same way,” the letter reads. “The existence of these risks therefore cannot serve as justification for denying approval to one product once approval for the other product has been granted.”

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