Grayscale Seeks Equal Treatment for ‘Spotcoin’ ETF Applications

Grayscale Investments, manager of the world’s largest bitcoin fund, urged the SEC to approve spot bitcoin ETF applications simultaneously, seeking to halt what’s shaping up as a race to be first among fund managers including BlackRock Inc., Fidelity Investments and ARK Investment Management. 

The firm, which manages the $18.2 billion Grayscale Bitcoin Trust, criticized in a July 27 letter to the Securities and Exchange Commission recent security agreements between exchange-traded fund issuers and Coinbase Global Inc. Grayscale lawyers said those pacts were extraneous because measures provided at the CME bitcoin futures exchange provide sufficient surveillance. 

The letter referenced seven other recent filings that include these agreements, which were submitted by BlackRock, Fidelity, Bitwise and others.  

The letter may signal Grayscale fears it will lose market share if another firm’s filing is approved first, according to a tweet from Bloomberg ETF analyst Eric Balchunas. ARK Invest founder Cathie Wood, whose firm along with 21 Shares, filed ahead of BlackRock and others earlier this year, has said in statements she feels her firm is leading the competition and would be approved first. 

“My read: they worried they’ll win the case but lose the race,” said Bloomberg ETF analyst Eric Balchunas in a tweet.  

Bitcoin Futures ETFs 

Grayscale has been in a legal battle with the SEC after the agency rejected the company’s application to convert its Grayscale Bitcoin Trust into an exchange-traded fund. While the SEC has approved bitcoin futures ETFs, it has rejected proposals for a so-called spotcoin ETF, which would track physical bitcoin.  

“An approval that promotes investor protection and fairness for issuers should therefore be made simultaneously with approval of all proposed spot bitcoin ETPs, including those such as the Trust,” Grayscale wrote in its letter.   

While Grayscale argues that existing surveillance measures are sufficient, the other spotcoin ETF hopefuls like BlackRock, VanEck, WisdomTree Inc., Fidelity and Invesco have recently updated their applications to include security agreements with Coinbase.  

Should the SEC accept these firms’ rationale that a surveillance sharing agreement with Coinbase is enough to meet the regulatory body’s fraud protection standards, the proposals could be approved ahead of Grayscale’s trust conversion and one company would get the advantage of investors flocking to their product first.  

The surveillance agreement is the most significant difference in this round of newly filed spot coin applications, Morningstar analyst Bryan Armour told etf.com recently. 

He said the agreement “is seen as a way to address the concern of manipulation and lack of oversight by allowing the exchanges to work with Coinbase and set up its surveillance sharing agreement.” Yet Grayscale argued this tactic isn’t a “silver bullet” to approval in its comments Thursday.   

Contact Lucy Brewster at [email protected] or on Twitter at @lucyrbrewster