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Prabhjeet Bhatla
Apr 18, 2022
by Prabhjeet Bhatla

SEC Risks Violating Admin Procedure Act by Rejecting Spot Bitcoin ETFs, Says Grayscale

Bitcoin ETF
The Securities and Exchange Commission (SEC) of the United States has officially approved two separate bitcoin futures exchange-traded funds (ETFs). This has fueled speculation in the crypto community that the Securities and Exchange Commission is on the verge of authorizing a spot bitcoin ETF.

The Investment Company Act of 1940 is used in the first structure (40 Act). This Act has been used to file the majority of proposed bitcoin futures ETFs so far. The Securities Act of 1933 is used in the second (33 Act). The Teucrium Bitcoin Futures ETF, which uses the latter format, was approved earlier this month.

Grayscale Investments CEO Michael Sonnenshein explained to CNBC last week:

“From the SEC standpoint, there were several protections that 40 Act products have that 33 [Securities Act of 1933] products don’t have, but never ever did those protections address the SEC’s concern over the underlying bitcoin market and the potential for fraud or manipulation.”

He continued:

“So the fact that they’ve now evolved their thinking and approved a 33 Act product with Teucrium really invalidates that argument and talks to the linkage between the bitcoin futures and the underlying bitcoin spot markets that give the futures contracts their value.” Sonnenshein opined:
“If the SEC can’t look at two like issues, the futures ETF and the spot ETF, through the same lens, then it is, in fact, potentially grounds for an Administrative Procedure Act violation.”

The Administrative Procedure Act (APA) oversees the development and issuance of regulations by federal agencies.

Grayscale submitted a proposal with the Securities and Exchange Commission (SEC) on October 19 of last year to transform its flagship bitcoin trust (GBTC) into a bitcoin ETF. Grayscale's main product, GBTC, manages about $26 billion in assets as of April 15. GBTC will be listed on the New York Stock Exchange rather than the OTCQX if the SEC approves it.

The company is awaiting word from the Securities and Exchange Commission (SEC) in early July on whether the filing will be authorized. If the SEC does not accept the GBTC conversion, the CEO has intimated that the company may file a lawsuit against the agency.

Commenting on whether the SEC will approve a spot bitcoin ETF, Sonnenshein stressed:

“It really is, in our opinion, a matter of when and not if.”
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Bitcoin ETF
SEC Risks Violating Admin Procedure Act by Rejecting Spot Bitcoin ETFs, Says Grayscale
Prabhjeet Bhatla
Prabhjeet Bhatla is a cryptocurrency writer covering startups and a researcher since 2020. She has authored many articles for Entrepreneur India and APAC (digital and print) on cryptocurrency and ever-evolving Blockchain, the technology behind Bitcoin, and other cryptocurrencies. She specializes in applied cryptography, privacy-enhanced information storage systems, anonymous cryptocurrencies, elliptic curve crypto-systems, and satellite television piracy.

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