In a move that underscores the ongoing battle for regulatory approval of cryptocurrency-based exchange-traded products (ETFs), top executives at Grayscale have formally requested a meeting with the U.S. Securities and Exchange Commission (SEC) to discuss their planned spot Bitcoin ETF. The company’s legal team sent a letter to the SEC on September 5, 2023, expressing their desire to engage in a dialogue with the regulatory body regarding recent developments in their efforts to convert the Grayscale Bitcoin Trust into an exchange-traded product (ETP).
The backdrop for this request is a series of significant events that have unfolded over the past year, demonstrating the complexities and challenges involved in obtaining approval for cryptocurrency-related financial instruments. Notably, in June 2022, the SEC rejected a rule change proposed by Grayscale, which would have allowed the company to offer its Bitcoin-based investment product to the public.
Undeterred by the initial setback, Grayscale took the matter to court in a bid to seek a review of the SEC’s decision. Their persistence paid off on August 29, 2023, when a court issued a ruling that has the potential to compel the SEC to reconsider the application. However, recent reports from the Wall Street Journal indicate that the SEC is currently in the process of reviewing the court’s order. This development leaves a range of possibilities open, including the SEC’s choice to appeal the court’s ruling or once again deny Grayscale’s proposal.
In their letter to the SEC, Grayscale emphasized several key points to support their request for approval. One of the primary arguments put forth by Grayscale is the similarity between their product and others in the market. They contend that this similarity should be a strong justification for approving their product. Additionally, Grayscale highlighted the potential harm that investors could face due to further delays in the approval process. They argued that investors should not be compelled to invest in “less efficient and more complicated product structures” when a viable alternative is available.
Furthermore, Grayscale weighed in on the issue of surveillance-sharing agreements, a hotly debated topic in the cryptocurrency ETF space. The SEC has received multiple spot Bitcoin ETF applications that include a requirement for a surveillance-sharing agreement with Coinbase. Grayscale expressed the view that such a requirement should not be imposed on their application, as it differs from others in a crucial way. Instead of Coinbase, Grayscale suggested that a surveillance-sharing agreement with the Chicago Mercantile Exchange (CME), the exchange on which their product would trade, should be sufficient for regulatory compliance.
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