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In its legal dispute with the Securities and Exchange Commission, Grayscale, the largest Bitcoin fund in the world, is receiving support from Coinbase, the largest cryptocurrency exchange in America (SEC).
In response to the federal agency’s refusal to accept Grayscale’s application for a Bitcoin ETF or any other application, the business is suing.
The SEC’s willingness to approve a number of Bitcoin futures ETFs but unwillingness to permit spot market ETFs to proceed, according to the fund, shows that the SEC “failed to apply consistent treatment to similar investment vehicles.”
Whether linked to Bitcoin or other commodities like gold, platinum, or palladium, spot and future exchange-traded instruments “provide the same investment exposure for investors,” according to the exchange. Both products are intended to track the value of Bitcoin, the underlying commodity.
With the use of an ETF, investors can obtain exposure to a given asset without having to buy and hold the underlying asset directly. For instance, a Bitcoin ETF would make it possible for investors to indirectly purchase Bitcoin without having to purchase it from an exchange and store it in a digital wallet.
The same objective is essentially accomplished by both spot market ETFs and futures, albeit in different ways. A spot market ETF would directly back its shares with Bitcoin, as opposed to a futures ETF, which monitors the price of derivative contracts, which themselves allow traders to wager on the future price of Bitcoin.
The CFTC also oversees the futures market. Gary Gensler, the chair of the SEC, has already hinted that he thinks this could make these markets safer for regular investors. The buying and selling of actual BTC on the Bitcoin spot market is unregulated.
To the contrary, Coinbase said in its brief that the SEC is “engaged in an arbitrary and capricious practice of picking winners and losers among investment products” by preventing Bitcoin spot ETFs from entering the market.
The Blockchain Association, the Chamber of Digital Commerce, the Chamber of Progress, and Coin Center were among the numerous crypto-focused non-profits that were included in the brief as amici curiae.
The SEC’s justification for rejecting numerous Bitcoin spot ETF proposals from various parties remains the same: as a safeguard against potential market manipulation, ETF providers must establish a “surveillance sharing agreement” with a “regulated market of significant size” related to the underlying Bitcoin being tracked.
Grayscale’s proposal claimed that it could exploit the CME Bitcoin futures market as a source of market manipulation data before being rejected in June. The commission asserted that despite being regulated, this market was insufficiently connected to “spot Bitcoin.”
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
