Grayscale calls out SEC approval of ‘riskier’ leveraged bitcoin ETF

Allowing spot bitcoin ETFs to start trading would eliminate regulator’s “unequal treatment” of bitcoin-based ETPs, lawyer tells appeals court in Monday letter

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Artwork by Axel Rangel

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Grayscale Investments has once again lashed out against the SEC — this time arguing that the regulator’s approval of a leveraged product reflects the latest example of it “arbitrarily” treating bitcoin futures products differently from proposed spot bitcoin counterparts. 

Don Verrilli, a partner at Munger, Tolles & Olsen that represents Grayscale, said in a Monday letter to the US Court of Appeals for the District of Columbia Circuit that the SEC’s latest bitcoin-related ETF approval exposes investors to “an even riskier investment product” than bitcoin futures ETFs.

The US securities regulator allowed Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) to come to market last month. The fund seeks investment results that correspond to two times the excess return of the S&P CME Bitcoin Futures Daily Roll Index for a single day. 

Read more: First leveraged BTC futures ETF debut — above average, yet underwhelming

BITX had $15 million in assets, as of July 7. 

The leveraged fund from Volatility Shares invests in bitcoin futures contracts trading on the Chicago Mercantile Exchange (CME) — “the value of which depends on, or is derived from, the underlying reference asset,” or bitcoin, Verrilli said in the letter

“The 2x Bitcoin Strategy ETF is therefore exposed to even more risks of the bitcoin markets than Grayscale’s proposed spot bitcoin ETP,” he added. 

An SEC spokesperson declined to comment.

Grayscale launched its lawsuit against the SEC last year after the US securities regulator blocked its proposal to convert its Bitcoin Trust (GBTC) to an ETF. 

The crypto asset manager said it expects a court decision this fall. Bloomberg Intelligence analysts have said they believe Grayscale has a 70% chance of coming out victorious, though industry watchers have said it is unclear exactly what a win for the firm would mean

BITX’s approval came nearly two years after the SEC permitted the first bitcoin futures ETF — ProShares’ Bitcoin Strategy ETF (BITO) to begin trading. That fund has about $1 billion in assets under management. 

“While the Commission could theoretically correct its discriminatory treatment of spot bitcoin ETPs by rescinding its approval of all bitcoin-based ETPs…the commission’s apparent willingness to permit even a leveraged bitcoin futures ETP — a particularly high-risk version of a bitcoin futures product — makes clear that the commission has no intention of doing so,” Verilli wrote. 

“Thus, the only way to eliminate the Commission’s unequal treatment of bitcoin-based ETPs is to allow proposed spot bitcoin ETPs like Grayscale’s to begin trading,” he added.

The letter follows a wave of spot bitcoin ETF filings in recent weeks after asset management giant BlackRock revealed plans to try to launch such a product. 

Former SEC Chair Jay Clayton said during an interview on CNBC Monday that if issuers can demonstrate the spot bitcoin market has “similar efficacy” to the futures market, “it would be hard to resist approving a bitcoin ETF.”

In addition to Grayscale and BlackRock, other issuers on a quest to introduce a spot bitcoin ETF include 21Shares (in tandem with Ark Invest), Fidelity, VanEck, Valkyrie, Invesco, WisdomTree and Bitwise.


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