In short: Grayscale Investments, a leader in digital currency investing, has criticized the SEC for approving a leveraged Bitcoin-based ETF while rejecting their own application for a spot Bitcoin ETF. Grayscale is suing the SEC, alleging a violation of the Administrative Procedures Act. They argue that the SEC is treating spot Bitcoin ETFs differently than BTC futures ETFs. Grayscale believes that the only way to address this unequal treatment is to allow spot Bitcoin ETFs to begin trading. Furthermore, Grayscale claims that the leveraged Bitcoin futures ETF approved by the SEC is a riskier investment than traditional BTC futures ETPs.
Our quick analysis:
Introduction:
In a surprising twist of events, the United States Securities and Exchange Commission (SEC) has approved a leveraged Bitcoin (BTC) exchange-traded fund (ETF), much to the chagrin of Grayscale Investments LLC, a prominent player in the digital currency investing realm. What's even more intriguing is the fact that the SEC rejected Grayscale's spot Bitcoin ETF application in the past. It seems like there's a mismatch in the SEC's decision-making strategy, which has understandably left Grayscale scratching its head.
Details and Confusion:
On June 27, the Volatility Shares Trust's leveraged Bitcoin futures ETF made its triumphant debut on the Cboe BZX Exchange. Surprisingly, the SEC didn't meddle in the listing process, even though it has a notorious history of rejecting numerous crypto-linked ETF applications. Remember, the SEC neither approved nor disapproved the proposed ETF, leaving the door wide open for Volatility Shares Trust's registration statement to come into effect. This fund aims to deliver investment returns that double the CME Bitcoin Futures Daily Roll Index.
Grayscale's Frustration:
Amidst this audacious listing, Grayscale couldn't ignore the glaring inconsistency in the SEC's stance. While no spot crypto ETFs have received approval, the SEC has given the green light to ETFs tied to BTC futures. This dichotomy didn't sit well with Grayscale, as the company had its own proposal to convert its Bitcoin Trust into an ETF mercilessly rejected by the SEC back in June 2022. The rejection prompted Grayscale to sue the regulatory agency, alleging a violation of the Administrative Procedure Act and the Securities Exchange Act of 1934, citing arbitrary and capricious discrimination against issuers of different types of ETFs.
Grayscale Fires Back:
In an attempt to shed light on the SEC's discriminatory behavior, Grayscale's lawyers penned a letter to the US Court of Appeals for the District of Columbia Circuit, highlighting the listing of Volatility Shares Trust's leveraged Bitcoin futures ETF. The lawyers expressed frustration with the fact that the commission continues to treat spot Bitcoin ETFs differently from BTC futures ETFs, despite the SEC theoretically having the power to rectify this disparity by rescinding its approval of all Bitcoin-based ETPs.
Furthermore, Grayscale pointed out that Volatility Shares' 2x Bitcoin Strategy ETF poses a greater risk to investors than traditional Bitcoin futures ETPs. However, the SEC argues that futures products are less prone to manipulation and are further safeguarded by the regulatory oversight of the Commodity Futures Trading Commission.
Conclusion:
The confusion surrounding the SEC's approval of a leveraged Bitcoin ETF while rejecting Grayscale's application has left many scratching their heads. Grayscale fiercely believes that the SEC's unequal treatment of BTC ETPs can only be remedied by allowing spot Bitcoin ETFs, like Grayscale's proposal, to enter the market. It remains to be seen how this legal battle will unfold and what implications it may have for the future of Bitcoin-based ETPs.
Disclaimer: This blog post is based on available information and does not constitute financial or investment advice.
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Disclaimer: Our articles are NOT financial advice, and we are not financial advisors. Your investments are your own responsibility. Please do your own research and seek advice from a licensed financial advisor beforehand if needed.
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