Refuting SEC allegations
On the 14th, the US crypto asset (virtual currency) management company Grayscale submitted a new document in a lawsuit over the disapproval of the conversion of the bitcoin (BTC) investment trust GBTC to an ETF. It refutes the assertion of the U.S. Securities and Exchange Commission (SEC) and reemphasizes Grayscale’s point of contention.
—Craig Salm (@Craig Salm) January 13, 2023
Grayscale argued that:
The SEC approved an ETF on bitcoin futures, a derivative product, but subsequently refused to convert GBTC into a physical bitcoin ETF. This was arbitrary and discriminatory against issuers of investment products.
Specifically, Grayscale first points out that there is a correlation of more than 99% between Bitcoin futures, Bitcoin spot, and their corresponding indices.
Despite its “near-perfect correlation,” the SEC has arbitrarily treated bitcoin futures ETFs and cash ETFs on different criteria, it said.
What is GBTC
A “Bitcoin investment trust” provided by Grayscale, a major US virtual currency investment company. GBTC is an investment trust linked to the price of Bitcoin and can be traded like ordinary stocks. It is offered to institutional investors and accredited investors recognized by the U.S. Securities and Exchange Commission (SEC), and has the advantage that investors do not need to buy, sell or hold actual Bitcoins.
He added that the “market tests” used by the SEC have also been arbitrarily applied, being relaxed for bitcoin futures ETFs and tougher for physical bitcoin ETFs. .
On this point, Grayscale’s chief legal officer, Craig Salm, said the SEC’s proposed test is “seriously flawed.” Bitcoin futures got its ETF approved despite being exposed to two types of risk, while Bitcoin spot had its ETF rejected despite having only one of these risks. said.
According to Salm, the upcoming schedule is that oral argument may be held as early as the second quarter of 2023 (April to June).
As background, this lawsuit was filed by Grayscale against the SEC following GBTC’s refusal to convert to an ETF. He criticized the SEC’s ruling as unfair and hurtful to investors.
Meanwhile, the SEC is arguing last December that its disapproval of the Grayscale cash ETF was “reasonable and supported by evidence.” The futures ETFs it has already approved said they hold only contracts traded on the closely monitored Chicago Mercantile Exchange (CME).
Relation: Grayscale reaffirms the points of contention received by the SEC
Benefits for investors
Grayscale also alleges that the SEC has violated its mandate to “protect investors.” The conversion of GBTC to ETFs will benefit the “more than 850,000 investors” holding the product, he explained.
Converting GBTC into a physical Bitcoin ETF would ease regulations and allow the product to issue and redeem shares at the same time. It will enable arbitrage trading that addresses both premiums and discounts to the spot price of Bitcoin, unlocking more than ¥510 billion ($4 billion) in value.
GBTC has been in a discounted state since the price divergence from physical Bitcoin turned negative at the end of February 2021. Conversion to ETFs is also expected to improve this situation.
Relation: Bitcoin investment trust GBTC litigation issue, proposal to eliminate negative divergence