ETF euphoria is still ongoing in the crypto and finance space, and potential Bitcoin investors are holding their breath ahead of what they hope will be the first approved exchange traded fund for the area markets.
Their spirits were lifted after the regulators gave their blessing 2X Distribution of Change to start trading the first ETF of leveraged Bitcoin futures on June 23. For many observers, the move is a step in the right direction, towards the inevitable approval of a spot market ETF.
The news is bittersweet, however, for another contender hoping to have a chance to offer an ETF spot: Grayscale.
Donald Verilli, one of the lawyers who represented Grayscale in its fight with the SEC, argued that the approval of the Volatility Shares ETF contradicted its own position against any fund dealing in the markets in the area.
“The fact that the Commission allowed a leveraged bitcoin futures ETP to begin trading shows that the Commission continues to arbitrarily treat spot Bitcoin ETPs differently than bitcoin futures ETPs,” Verilli wrote in a LETTERS to the clerk of the US Court of Appeals in Washington DC on Monday.
For the better part of a year, the asset manager has been mired in a lawsuit against the Securities and Exchange Commission, which it accuses of being unfair and arbitrary in its approval process. Grayscale sued the SEC in June after the agency rejected his application to convert his Grayscale Bitcoin Trust (GBTC) into a spot market ETF.
The SEC argued that Grayscale’s application lacked a plan to monitor any impact on spot prices from fraud or market manipulation. Grayscale rejected this claim, arguing that futures prices were taken from spot markets, a position that the federal judge hearing the lawsuit showed sympathy in a hearing in March.
For Grayscale, the approval of the Volatility Shares ETF is just proof of the inconsistency of the SEC. In his letter, Verilli argued that by dealing with futures markets using leverage to achieve greater returns, the fund exposes investors to more risk than a spot or traditional futures. ETF. This, he argued, should invalidate their argument against Grayscale’s filing.
“While the commission could theoretically correct its discriminatory treatment of spot bitcoin ETPs by revoking its approval of all Bitcoin-based ETPs, the Commission’s apparent willingness to approve even one leveraged bitcoin futures ETP—a particularly high-risk version of a Bitcoin futures product—explains [it] there was no intention of doing it,” Verilli said.
Representatives from Volatility Shares declined to comment on Verilli’s arguments.
In a early interview with Decrypt, ETF co-founder and president Justin Young said it was Grayscale’s first application that opened the door for new entrants like BlackRock to also find a product in the market. He added that it was his belief that the approval of the Volatility Shares’ ETF would facilitate the approval of another.
“I think it brings to a lot of people’s attention the thought that if the SEC allowed a leveraged Bitcoin linked product through, why on Earth would they not allow spot Bitcoin through?” Young said.
In a thread on Twitter, Grayscale appears to be in agreement with this view, as it does not claim that products such as Volatility Shares’ ETF should not exist. The company insisted instead that it was motivated to speak out against the SEC’s approval process.
“Finally, the excitement for these products supports what we’ve said before: that investors are eager for $BTC exposure in ETF wrapper protections,” it wrote.
