Episode 78 of Season 4 of The Scoop was recorded remotely with The Block's Aislinn Keely and Craig Salm, Chief Legal Officer at Grayscale.
The US has yet to see a spot bitcoin exchange-traded fund (ETF) reach the market, but when a futures-based product got the green light from the Securities and Exchange Commission (SEC) last year, issuers were hopeful.
Some thought it signified the regulator becoming more comfortable with crypto products and a spot ETF could be on the horizon. But since then, the SEC continued to shoot down application after application on the basis that there aren't sufficient mechanisms to prevent price manipulation in the spot market.
Grayscale, which has long desired to convert its flagship GBTC product into an ETF, took issue with this. During the SEC's continued extensions on its application, and after a series of rejections of other similar applications, the firm sent a letter saying the regulator could be violating its own procedures by approving a futures product but refusing to allow a spot-based product. The firm argued that futures are priced based on the underlying spot market, meaning any price manipulation in the spot market would affect futures products.
The idea is if the regulator is comfortable with futures, it should be comfortable with a spot-based product.
But Grayscale, too, received a rejection weeks later, spurring it to mount a legal challenge in the DC Court of Appeals. Now, it's gearing up to submit its first brief in the case, detailing its qualms with the SEC's rejection of its application.
In this week's episode of Policy Scoop, Aislinn Keely sat down with Grayscale's Chief Legal Officer, Craig Salm, to take an in-depth look at the firm's argument.
"It wasn't a decision that we made lightly, and during the course of that comment letter period, we had a couple of meetings with the Commission to try to work through their questions and the issues presented, lay out the arguments and reasoning why we felt that if they were okay with futures, they should now be okay with spot," said Salm. "It seemed like a natural progression and we were excited by the level of development that we were seeing in the Bitcoin futures markets. Ultimately, we got to a point where we just reached a disagreement."
In this episode of Policy Scoop, Keely and Salm also discuss:
- How the market has changed since the earliest bitcoin ETF proposals.
- Why the push for a bitcoin ETF requires a legal challenge.
- What happens if the firm wins its court case.
- Why it feels the SEC's denial of its product could be "arbitrary and capricious."
- The next steps in the case.
This episode is brought to you by our sponsors Tron, Chainalysis & IWC Schaffhausen
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About IWC Schaffhausen
IWC Schaffhausen is a Swiss luxury watch manufacturer based in Schaffhausen, Switzerland. Known for its unique engineering approach to watchmaking, IWC combines the best of human craftsmanship and creativity with cutting-edge technology and processes. With collections like the Portugieser and the Pilot’s Watches, the brand covers the whole spectrum from elegant timepieces to sports watches. For more information, visit IWC.com
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