Grayscale lawyers criticize SEC over leveraged bitcoin ETF

Companies • July 10, 2023, 1:54PM EDT

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Quick Take

Grayscale lawyer Donald Verrilli argued that the leveraged crypto ETF is “an even riskier investment product.”
The Volatility Shares 2x Bitcoin Strategy ETF, or BITX, became effective last month after not being rejected by the SEC.

Attorneys for asset management company Grayscale criticized the U.S. Securities and Exchange Commission for allowing the first leveraged bitcoin exchange-traded fund while having rejected previous efforts for a spot fund.

Grayscale lawyer Donald Verrilli argued that a leveraged bitcoin ETF is “an even riskier investment product” in a letter sent Monday to the U.S. Court of Appeals for the District of Columbia Circuit.

“The fact that the Commission has allowed a leveraged bitcoin futures ETP to begin trading demonstrates that the Commission continues to arbitrarily treat spot bitcoin ETPs differently than bitcoin futures ETPs,” Verrilli said.

The Volatility Shares 2x Bitcoin Strategy ETF, or BITX, became effective last month after not being rejected by the SEC. The agency allowed the first bitcoin futures ETF to trade in 2021.

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Grayscale brought a case against the SEC last year for rejecting its proposal to convert its flagship fund, GBTC, into a spot bitcoin ETF.

The SEC has reasoned that futures products are harder to manipulate in part because they are based on prices from the CME, which is regulated by the Commodity Futures Trading Commission.

Others vying for a spot bitcoin ETF

The SEC has not yet approved a spot bitcoin ETF, but large asset managers including BlackRock and Fidelity have recently filed for funds with the agency.

Proposals could face headway from the agency, as it has repeatedly cited concerns of fraud and market manipulation when assessing past applications.

About Author

Sarah is a reporter at The Block covering policy, regulation and legal happenings. Before, Sarah was a reporter with CQ Legal writing about securities regulation, which is where she first started reporting on crypto. Sarah has also written for The Bond Buyer and American Banker, among other finance-related publications. She graduated from the University of Missouri and earned a degree in print and digital journalism. Sarah is based in Washington D.C., and is an avid coffee lover. You can follow her on Twitter @ForTheWynn.