Spot Bitcoin ETF Support Grows as Agency Holds Course

  • SEC Chairman Gary Gensler said his agency must determine whether a spot bitcoin ETF is designed to prevent fraudulent and manipulative acts and practices.
  • Nearly 100 people have so far weighed in on Grayscale Investments’ proposed conversion of its Bitcoin Trust into an ETF in public comments to the SEC

As the Securities and Exchange Commission refuses to budge on signing a spot bitcoin ETF, a growing number of industry players are urging the regulator to reconsider.

The final battleground: Grayscale Investments’ proposal to convert its bitcoin trust into an ETF (exchange-traded fund). The company filed an application to convert the $28 billion Grayscale Bitcoin Trust (GBTC) into an ETF in October after the first bitcoin futures ETF began trading.

During the SEC’s 240-day review period, which expires in July, the agency is seeking public comment.

Andrew Farinelli, private wealth adviser at Embree Financial, wrote to the SEC that the conversion would reduce costs and improve security for bitcoin investors. Chicago-based Embree, which has 85 institutional clients and 300 families, manages about $1.5 billion.

“Their accounts and investments would often be fully protected by the FDIC, they would be kept in a trusted institution – [such as] Charles Schwab – and the investment itself would be safer under SEC ETF regulations,” Farinelli wrote. “Finally… it allows investment professionals like me to provide the best advice to their clients and to investors in general.”

SEC Chairman Gary Gensler, meanwhile, gave bitcoin ETF hopefuls little cause for optimism. In his final public comment, Gensler wrote a letter to U.S. Rep. Tom Emmer, R-Minn., on Tuesday saying that the “different holdings” of bitcoin spot and futures products have led to “different regulatory outcomes.” Gensler is “technology-neutral” about the outcome, he wrote.

“In reviewing bitcoin spot ETPs, the commission must apply all Exchange Act standards, which it followed in its orders taking into account previous proposals to list bitcoin spot ETPs,” said writes Gensler. “In particular, the commission must consider whether the bitcoin spot ETP proposal is designed to prevent fraudulent and manipulative acts and practices.”

The letter followed a November dispatch to Gensler from Emmer and Rep. Darren Soto, D-Fla., saying the agency’s approval of a futures ETF should amount to a green light for a product at the cash.

“We do not understand the SEC’s view of the perceived material difference in risk profiles, as bitcoin futures and spot markets are intrinsically linked and carry the same risks of fraud and manipulation,” wrote Emmer and Soto.

The stakes are rising. A survey last month found that the percentage of finance professionals investing their clients’ funds in crypto has risen from 9% to 15% over the past year.

Sixty percent cited regulatory concerns preventing them from making their first crypto allocation or increasing their crypto allocation, while 32% noted the lack of easily accessible investment vehicles, such as ETFs.

The argument from industry powerhouses such as Coinbase is that a spot ETF would lead to an expansion of safe retail investing in bitcoin.

Paul Grewal, Chief Legal Officer of Coinbase, also wrote a letter in support of the conversion in December.

“We believe investors should have access to GBTC in an ETP format because it offers retail investors a proven way to gain exposure to bitcoin at prices that closely mirror bitcoin spot trading prices without owning it. themselves,” Grewal wrote.

Grewal joined over 100 people in writing, with the majority supporting the grayscale conversion.

“This issue remains a priority for us and we will continue to oversee the SEC in its mission to maintain fair and orderly markets and facilitate capital formation,” Emmer wrote in a Twitter post on Thursday.

A spokesperson for Emmer did not immediately return a request for additional comment.

The recent flood of public comments comes after lawyers representing Grayscale Investments called the agency’s decision to approve a futures-based fund and not a cash ETF “arbitrary and capricious”.

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  • Ben Strack

    Ben Strack is a Denver-based journalist who covers macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for various local Long Island newspapers. He graduated from the University of Maryland with a degree in journalism. Contact Ben by email at [email protected]

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