Grayscale Tells SEC To Hurry Up – Former Chair Says “Approval Is Inevitable”

Key Takeaways

• Grayscale lawyers urged SEC to speed up the ETF application process.
• The company believes “there are no grounds for treating the Trust differently from ETPs investing in Bitcoin futures”.
• Former SEC Chair Jay Clayton says “an approval is inevitable”.

Grayscale CEO, Michael Sonnenshein, announced  that the company’s “legal team submitted a comment letter to $GBTC’s 19b4 application on behalf of all @Grayscale investors.”

This comes in light of a recent ruling by the US District Court stating that the US Securities and Exchange Commission (SEC) was wrong when rejected Grayscale’s application to convert its Bitcoin Trusts (GBTC) to a Bitcoin spot ETF, calling it “arbitrary and capricious”.

In the meantime, former SEC Chair Jay Clayton told  CNBC that the regulating body will inevitably approve spot ETF applications filed by Wall Street institutions, such as Grayscale and BlackRock.

Grayscale’s Letter

“On behalf of our client Grayscale Investments, LLC, sponsor of Grayscale Bitcoin Trust (BTC), we would appreciate the opportunity to meet with the staff of the Securities and Exchange Commission as soon as practical to discuss the way forward in view of recent developments in the Trust’s ongoing effort to convert to an exchange-traded product (“ETP”),” reads the introduction of the letter  filed by Grayscale lawyers.

The letter goes on explaining the proceedings thus far between the company and the regulating body. In 2021, Grayscale applied to convert GBTC to a spot ETF, and after a year of silence, the regulatory body responded with a rejection.

As a result, Grayscale filed a lawsuit against the SEC, claiming the commission acted in a manner that was “arbitrary and capricious”.

“Grayscale thereafter sought review of the Commission’s decision in the U.S. Court of Appeals for the D.C. Circuit pursuant to, and on August 29, 2023 the Court of Appeals vacated the Commission’s disapproval order.

“If any other reason could be offered in attempting to differentiate spot bitcoin ETPs from bitcoin futures ETPs—whether based on the Exchange Act’s requirement that rules be “designed to prevent fraudulent and manipulative acts and practices” or otherwise—we are confident that it would have surfaced by now in one of the fifteen Commission orders that rejected spot bitcoin Rule 19b-4 filings even after bitcoin futures ETPs began trading.”

Prompt Action Required

Grayscale’s letter then urges the regulator to take prompt action regarding the company’s application, saying “the Commission’s review of the Trust’s Rule 19b-4 filing has now driven on significantly longer than the time allowed.”

Finally, the company’s lawyers request that the SEC consider three main points when it comes to moving on with the ETF application:

• “First, each day that passes without listing the Trust’s shares on NYSE Arca is another day when the Trust’s existing investors bear unjustified harm in the form of shares that trade at a substantial discount to net asset value. This harm could be avoided if the Trust were treated the same as the bitcoin futures ETPs whose Rule 19b-4 filings the Commission has already approved. Indeed, On the day the Court of Appeals announced its decision, the discount tightened by more than 600 basis points in anticipation of eventual Rule 19b-4 approval, representing more than $2 billion in value returned to investors in a single trading session—which even then was more than $3 billion below the Trust’s net asset value, where it would trade if it had approval to operate as an ETP. 
• Second, U.S. investors seeking access to regulated bitcoin investment products should not be forced into less efficient and more complicated product structures simply because these are the only product types yet to gain Commission approval.
• We believe the Commission may not now impose an additional, new requirement on spot bitcoin ETPs for a surveillance-sharing agreement with a spot bitcoin market.”

Former SEC Chair Says ETFs Approval Is Coming

All the while, former Chair of the US Securities and Exchange Commission Jay Clayton discussed ETF applications filed by the likes of BlackRock and Grayscale during an interview  with CNBC.

“It is clear that Bitcoin is not a security. It is clear that bitcoin is something that retail investors want access to, institutional investors want access to, and, importantly, some of our most trusted providers who are fiduciaries or have duties of best interest want to provide this product to the retail public. So I think […] an approval is inevitable,” said Clayton.

“The dichotomy between a futures product and cash product can’t go on forever.”