A lawyer for Grayscale Investments has sent a letter to a US circuit court, challenging regulators’ refusal to allow Grayscale’s Bitcoin ETF to trade. The lawyer noted that regulators clearly see no problem in allowing the Volatility Shares 2X Bitcoin Strategy ETF to trade on exchanges, which, he argues, may even be riskier than product regulators won’t approve, as it is tied to CME futures contracts.
Grayscale Investments has taken a new step in its challenge of regulators’ refusal to allow its spot Bitcoin ETF to trade on exchanges. Donald B. Verrilli, Jr., an attorney at Munger Tolles & Olson, sent a letter to United States Court of Appeals Judge Mark Langer noting that the Securities and Exchange Commission (SEC) has allowed the 2X Bitcoin ETF strategy. of Volatility Shares (BITX) for trading.
Last year, Grayscale applied to convert its Bitcoin Spot Trust into a Bitcoin Spot ETF. The SEC said no. However, in Grayscale’s opinion, BITX is riskier than the product that regulators will not approve. Is it illogical to allow trading an ETF that carries higher risk, while saying no to insurance? Verrilli demanded answers.
Grayscale Investments Bitcoin ETF, Victim of a Double Standard?
The 2X Bitcoin Strategy ETF aims to double the performance of the S&P CME Bitcoin Futures Daily Roll Index every day, he noted. And, what is more important, it is leveraged. The letter continued:
“It exposes investors to an investment product that is even riskier than traditional Bitcoin futures exchange-traded products. . . covering risks related to the Bitcoin spot and futures markets.”
Verrilli quoted BITX’s June 15 registration statement, making it quite clear that the product could incur huge losses in the hands of people who don’t know what they’re doing. He admitted that the ETF in question is suitable only for “informed investors,” which clearly means investors who are paying close attention to the performance of their assets, the statement added.
Said sophisticated investors could see market turmoil wipe out the value of their investment. It could happen any time, the log statement adds. BITX invests in futures contracts whose value is based on that of Bitcoin, the underlying asset.
Thus, Grayscale’s attorney accuses the SEC of double standards in its regulation of exchange-traded products. The regulator allows the riskier leveraged product to be traded, while keeping the spot Bitcoin product off exchanges.
The solution that Grayscale seeks for this “unequal treatment” is for regulators to change course, as well as to allow Grayscale’s product to be commercialized.
The Industry Agrees
The publication of the letter sparked a flurry of responses online. Grayscale’s tweet quickly garnered more than 30,000 views. Many commentators wholeheartedly agreed with Grayscale and shared his disdain for the SEC’s inconsistent stance.
Bloomberg Senior ETF Analyst Eric Balchunas chimed in with a tweet:
“Grayscale’s lawyer just submitted a letter today to the judge in their case about the 2x Bitcoin Futures ETF $BITX being approved and how that just adds to their case about how the hell can that exist and not a vanilla spot ETF?”
A commenter who goes by the hashtag Bitcoin Bombadil agreed with Grayscale and Balchunas. But he doubted they would get very far in arguing with US regulators.
Bitcoin Bombadil retweeted Balchunas’ reaction, with the comment: “Reasonable objections and arguments will not be tolerated in Clown World.”
By Audy Castaneda
