Grayscale pours cold water on wave of new spot bitcoin ETF applications

Asset management company Grayscale used a Thursday letter to the Securities and Exchange Commission to pour cold water on excitement that has been mounting about a wave of new applications for spot bitcoin ETFs, arguing that so-called surveillance-sharing agreements with Coinbase would neither satisfy or be necessary under the current standard used by the regulator.

The SEC is currently reviewing applications for the spot funds from fund managers including BlackRock, Ark Invest, Invesco, Fidelity, VanEck and Valkyrie. It has yet to approve one and previously rejected a proposal from Grayscale to convert its flagship GBTC fund into a spot bitcoin ETF, the cause of a lawsuit by the investment firm against the SEC.

"The possibility of a surveillance-sharing agreement between a listing exchange and a spot bitcoin trading venue is not a new idea," Grayscale lawyer Joseph Hall wrote in the letter, pointing out that Coinbase is not registered with markets regulators as either a national securities exchange, broker-dealer or futures exchange.

The lawyer argued that the SEC is already in a position to approve a spot fund, if it wanted to, using the standard it's already used to approve bitcoin futures ETFs. He said that any move to approve only the recent wave of applications would "reflect a positive but sudden and significant change in the Commission’s application of the relevant statutory standard, and as such would improperly grant an unfairly discriminatory and prejudicial first-mover advantage to these proposals."

Hall added that any approval, if one comes, should include all previous ones that have been disapproved. He said the company supports a regulatory approval that would facilitate the approval of all spot bitcoin ETF proposals.

Surveillance-sharing agreements

"The Commission has previously questioned the relevance of pricing data produced by what it views as unregulated bitcoin trading venues," Hall said, referring to the surveillance-sharing agreements with Coinbase that have been heralded as a breakthrough in the quest for a spot bitcoin fund.

Coincidentally, SEC Chair Gary Gensler once again expressed skepticism about crypto markets when asked about the pending applications during a televised interview on Thursday.

Earlier this month, Grayscale lawyers criticized the SEC for allowing the first leveraged bitcoin exchange-traded fund while having rejected its previous efforts for a spot fund.

“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,” lawyer Donald Verrilli said.