A Spot Bitcoin ETF will protect US investors, consumers

There are many possible outcomes if a federal court rules in Grayscale’s favor in the lawsuit against the Securities and Exchange Commission (SEC), said Craig Salm, Grayscale’s legal director.

The lawsuit was filed by the CoinDesk sister company after the SEC rejected Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund. Grayscale argued that the futures-based bitcoin ETFs the SEC has already approved are not fundamentally different from the bitcoin-holding (spot) ETF Grayscale wants to offer.

“Futures derive their pricing from the underlying spot markets, given that they are derivatives of spot bitcoin,” Salm said on CoinDesk TV’s “First Mover” Wednesday. “If we’re going to have bitcoin futures trading approved by the SEC, how can we not also have spot bitcoin ETFs also approved?”

He added: “Is the commission acting arbitrarily and capriciously in violation of the Administrative Procedure Act? And are they discriminating against issuers in violation of the Exchange Act by approving bitcoin futures and denying spot bitcoin?”

On Tuesday, a panel of judges at the DC Circuit Court of Appeals in Washington, DC, appeared to agree with Grayscale’s argument. The court is expected to issue its ruling in the next three to 12 months.

Should the court rule in Grayscale’s favour, there are several possible things that could happen next, according to Salm. “The Commission may approve GBTC as a spot bitcoin ETF” as well as approve the spot ETFs of other companies that have been similarly rejected by the SEC.

“We think it’s the right position,” he said.

“I think now we see … crypto is here to stay. Bitcoin is here to stay and we’re not going to be able to ban it,” he said. “Conversely, what can we do to further regulate and protect American investors and consumers? Spot Bitcoin ETFs are a very important way to do that.”

However, Salm said, there is also the possibility that the SEC could “go back and continue to reject GBTC as an ETF on a new basis.” Or the SEC could withdraw previously approved bitcoin futures ETFs. Salm said the outcome could materialize if the agency takes the stance of treating all bitcoin ETF products equally.

However, the SEC is unlikely to take that route, “given the amount of disruption” it would cause and the “lack of investor protection” that would result, Salm said.

Considering that the SEC has already said it does not consider bitcoin to be a security, Salm said the Commodity Futures Trading Commission should be the agency involved in bitcoin products.

“We are all for more legislative action that will bring more clarity to the asset class. Giving the SEC jurisdiction over spot bitcoin trading is not necessary to have a spot bitcoin ETF,” he said. “Bitcoin is one of the cryptocurrencies that is clearly not a security, it is a commodity, and that has been stated by SEC and CFTC officials over many years.

“I think bitcoin as a commodity rightfully belongs in the CFTC jurisdiction,” he said.