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Grayscale admits SEC violated the law in approving bitcoin futures ETFs

Readiness SEC approve bitcoinETF based on futures with rejected orders based on its spot option may violate the Administrative Procedure Act (APA). This conclusion is contained in lettersent by Grayscale Investments to the department.

The APA regulates the decision-making process of federal agencies.

The digital asset manager called the SEC’s actions “arbitrary and unlawful.” This is how the company reacted to the refusal to register a spot Bitcoin ETF from VanEck.

Grayscale hopes to convert its managed bitcoin trust (GBTC) into an exchange-traded fund.

October 19 NYSE Arca Stock Exchange sent an application to convert a product from Grayscale to ETF. November 2 SEC requested comments to the public regarding this proposal. If the terms of consideration are not extended, the Commission will make a decision no later than December 24.

“Futures Bitcoin-ETPs in accordance with the law [об инвестиционных компаниях] 1940, and bitcoin-ETPs that do not require such registration, are similar to each other in all appropriate respects. However, relying on a waiver order [заявки от VanEck] of November 12, 2021, the Commission interprets them differently “, – the letter says.

Claim from VanEck is filed under the Securities Act of 1933. The document focuses on information disclosure.

The Investment Company Act of 1940 empowers regulators to set consumer protection standards that issuers must meet. Earlier, the head of the SEC Gary Gensler stressed that compliance with the provisions of the document is one of the conditions for the approval of Bitcoin ETF.

Grayscale pointed out that such a position of the regulator departs from the declared concern about market manipulation. The Commission cited the latter as the reason for the refusal to register applications for the spot variant of the product.

If the SEC did not see market manipulation in the futures market, then we can conclude that the spot market also satisfies this criterion to a sufficient extent.

“Although the Commission pointed to investor protection in the 1940 Act as a justification for different interpretations [спотового и фьючерсного вариантов] its measures are unaffected and therefore irrelevant to the issue that the SEC has repeatedly referred to to reject Rule 19b-4 applications for spot bitcoin-ETPs. Namely, manipulation and fraud in the spot market of the first cryptocurrency “, – the letter says.

Some of the denied spot Bitcoin ETF applications relied on CME indices. Grayscale wondered why the pricing mechanisms of this regulated marketplace are sufficient only to filter out manipulations in the futures market.

“The current Bitcoin ETF landscape is unfair and discriminatory towards GBTC shareholders and other investors interested in affordable and effective investments in the first cryptocurrency.”, – explained Grayscale vice president of legal affairs Craig Salm.

Recall that Arcane Research analysts considered the chances of launching a spot bitcoin ETF low. They justified this by maintaining the discount of GBTC quotes relative to NAV

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