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Grayscale Investments urged the Securities and Exchange Commission (SEC) to approve the conversion of its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF and warned the regulator that it is inflicting “unjustified harm’’ on investors by delaying approval.
In a letter sent to the SEC by its lawyers on Sept. 5, Grayscale said “there are no grounds’’ for treating GBTC differently from the Bitcoin futures ETFs products that the regulator already permits.
“The Trust’s nearly one million investors deserve this fair playing field as quickly as possible,” the letter said. “Each day that passes, investors and spot Bitcoin product issuers like Grayscale incur competitive harm by not benefitting from the treatment accorded to Bitcoin futures ETPs (Exchange Traded Products).’’
Today, our legal team and counsel at Davis Polk & Wardwell and Munger Tolles & Olsen delivered a letter to the SEC with important information to consider as it decides on next steps for $GBTC. (1/3) pic.twitter.com/OHGlyvjcAm
— Grayscale (@Grayscale) September 5, 2023
In a landmark legal win for Grayscale over the SEC last week, a court called the regulator’s decision to approve futures ETFs but not spot Bitcoin investment products “arbitrary and capricious.”
Spot Bitcoin ETFs ‘Materially Similar’ to Bitcoin Futures ETFs
It agreed with Grayscale that spot Bitcoin ETFs are “materially similar” to Bitcoin futures exchange-traded products already approved by the SEC.
Grayscale’s win sparked a rally for cryptocurrency assets and was heralded as another breakthrough for an industry grappling to fend off the SEC’s regulation-by-enforcement strategy.
Seven firms, including BlackRock and Fidelity, have applied to the SEC to launch spot Bitcoin ETFS. But the SEC again delayed a decision on the applications last week, sending crypto assets into a tailspin.
The stakes around approval of the products are huge because spot Bitcoin ETFs backed by blue chip investment firms like BlackRock and Fidelity would represent a landmark breakthrough for the crypto industry that would likely raise all boats.
New York Digital Investment Group (NYDIG) has predicted that the approval of Spot Bitcoin ETFs could result in an influx of $30 billion in new demand for Bitcoin.
The SEC is extending the period for public feedback on the applications for spot Bitcoin ETS with some approvals now possible in October. But the regulator has 240 days from when the applications were filed to decide, placing the final deadlines for a decision at around mid-March 2024.
To illustrate the harm done by the SEC’s delay in approving Grayscale’s conversion into a spot Bitcoin ETF, its lawyers said that on the day of its legal win over the SEC a Bitcoin futures exchange-traded product received net inflows up more than 800% above its average daily inflow during the previous 30 days.
“It is more than reasonable to assume that the Trust would have attracted a substantial portion of this investment capital had it too been operating as an ETP on that day,’’ it said.
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