Why The SEC Will Reject Grayscale's Bitcoin Linked Spot ETF

The U.S. Securities and Exchange Commission (SEC) will announce its decision on the Bitcoin-linked spot Exchanged Traded Funds (ETFs) proposals filed by investment giants Bitwise and Grayscale. The Commission is expected to make this announcement on the former by July 1^st and on the latter by July 6^th.

According to Bloomberg Intelligence’s James Seyffart, the U.S. regulator is likely to deny the applications. The expert believes the Commission could issue both letters of rejection this Friday, July 1^st, 2022.

In the past, the regulator has rejected similar proposals as it claims the crypto market is susceptible to price manipulation, cyber-attacks, scams and frauds, inside trading, and more. The U.S. SEC Chairman Gary Gensler has compared crypto with the “Wild West” for its lack of regulations.

In 2021, the Commission approved a Bitcoin-linked futures ETF based on the Chicago Mercantile Exchange (CME) contracts. The regulator claims that futures contracts in the country are sufficiently regulated to allow a BTC futures ETF, but the spot market “lacks” the same level of consumer protection.

Seyffar believes the U.S. SEC has been hinting at these denials for some time via statements, other approvals, and the SEC Chair interviews. In the investment firm Teucrium BTC futures ETF approval, the Commission “spent a lot of time talking about spot Bitcoin ETFs in a filing that wasn’t about spot” BTC.

The Bloomberg Intelligence expert said:

There are countless other quotes from the SEC & Gensler via filings, speeches, interviews etc over the last few months that push us towards expecting a denial (…).

There are significant reasons why Grayscale and others are pursuing a BTC spot ETF. Unlike its futures counterpart, the spot-based investment product will have lower fees and will provide direct exposure to the price of the cryptocurrency making it more efficient.

Another Bloomberg Intelligence ETF expert Eric Balchunas gave Grayscale a 0.5% of getting ETF approval.

Little to none, IMO the chances of $GBTC being allowed to convert to an ETF next week are 0.5%, which is about the same odds the NY Jets have of winning the Super Bowl. https://t.co/u8vJngLDZU

— Eric Balchunas (@EricBalchunas) June 27, 2022

Why Grayscale Will Suit The SEC Over The Bitcoin Spot ETF

Grayscale already provides U.S. investors with access to a BTC-based investment product, the Grayscale Bitcoin Trust (GBTC). The product has been trading at a discount since October 18, when the first BTC-linked futures ETF was approved.

The GBTC has many disadvantages for its investors, including long lockdown periods and high fees. Thus, why Grayscale has been relentless in its proposal by even hiring the former U.S. Solicitor General Donald Verrilli.

Verrilli will work as the firm’s senior legal strategist. This hiring has strengthened the theories that Grayscale is preparing to take the SEC to court and fight for approval. They believe there are no grounds for the regulator to continue pushing back on a BTC spot ETF.

The Bloomberg Intelligence expert shared a roadmap on what a possible Grayscale v SEC trial could look like. The legal process could take years and might still favor the regulator.

Source: Jame Seyffart via Twitter

At the time of writing, BTC’s price trades at $20,000 with a 1% loss in the last 24 hours.