Grayscale calls on SEC to approve leveraged bitcoin futures ETF, denies spot

Grayscale, the owner of the world’s largest bitcoin fund, has become even more frustrated with the US Securities and Exchange Commission (SEC) after the regulator last month approved a leveraged bitcoin futures ETF.

The company has filed its complaint with the court, arguing that the approval strengthens its case that the SEC’s rejection of its Bitcoin Spot ETF application is “discriminatory.”

2X Futures Vs Spot: What’s Riskier?

one in Letter On Monday, in the Court of Appeals for the DC Circuit, Grayscale explained the risks associated with its Volatility Shares 2x Bitcoin Strategy ETF (BITX), which was allowed by the SEC to begin trading on June 27.

The leveraged product, which raised eyebrows in the crypto industry weeks ago, seeks to double the performance of the S&P 500 CME Bitcoin Futures Daily Roll Index each day.

“As a result, this exposes investors to an even riskier investment product than traditional bitcoin futures exchange-traded products, which include risks related to both the futures and spot bitcoin markets,” wrote Grayscale.

Starting October 2021, the SEC has approved a series of bitcoin futures ETFs for public trading, including a short-linked ETF last year. At the time, Grayscale CEO Michael Sonnenshein viewed the approval optimistically, believing the SEC was becoming more comfortable with bitcoin-related products across the board.

However, a few days later, the agency denied Grayscale’s filing to convert the Grayscale Bitcoin Trust (OTCMKTS:GBTC) into a spot ETF, arguing that the underlying bitcoin spot market poses market manipulation risks that could deter investors. can cause harm.

Yet according to Grayscale, the recently approved BITX is too risky: the fund’s registration description itself states that it “may only be suitable for informed investors” and that such investors “will likely lose their investment within a single day”. May lose full value.” ,

Case against SEC

The registration description states that the ETF invests in CME bitcoin futures contracts, the value of which “depends on, or is derived from, an underlying reference asset” — ie. “Bitcoin”.

One of Grayscale’s main legal arguments against the SEC is that CME bitcoin futures – the market with which it intends to form a surveillance-sharing agreement (SSA) for its spot bitcoin ETF – is directly linked to the bitcoin spot market. .

While the SEC has argued otherwise, the judge overseeing the case appeared more sympathetic to Grayscale’s arguments during oral arguments in March.

“The only way to eliminate the SEC’s unequal treatment of bitcoin-based ETPs is by allowing proposed spot bitcoin ETPs like Grayscale to begin trading,” the company concluded.

Bitcoin soared last month after asset management giant BlackRock filed for a bitcoin spot ETF, raising hopes that it could be the first to please the SEC. Unlike Grayscale, the company has confirmed that it will form an SSA with spot bitcoin exchange Coinbase.

However, uncertainty still remains surrounding BlackRock’s filing: commercial litigator Joe Carlasre told Cryptopotatoes this month that Coinbase may not be considered sufficient by the SEC to detect market manipulation, as it does not contain global bitcoin trading volumes. contains only ~2% of the