According to Grayscale, the SEC’s repeated refusal to approve an ETF based on physical Bitcoin may be violating the Administrative Procedure Act (APA), a set of rules governing the decision-making process of federal agencies.
Grayscale’s complaints to the SEC about Bitcoin ETFs
This is what is stated in a letter sent by Grayscale’s lawyers to the SEC and published on the agency’s website.
Grayscale is attempting to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, but is facing opposition from the SEC.
To date, the agency has authorized a few ETFs based on Bitcoin futures, but none based on physical BTC, despite the fact that the first such request dates back as far as eight years ago.
Bitcoin ETFs, “arbitrary and capricious” choices
In the long letter, it is argued that there is no basis for believing that investing in the derivatives market is acceptable, while investing in the upstream assets of those derivatives is not.
Grayscale goes so far as to claim that the SEC’s decisions in this regard have been “arbitrary and capricious”, seeing that after approving ETFs based on Bitcoin futures, it has rejected at least one application for the approval of an ETF based on physical BTC.
In reality, the difference in treatment is due to the fact that these two types of financial products respond to different laws, which evidently treat them in different ways, unfortunately. Therefore, the SEC has a legal reason behind this unequal treatment.
In the letter, Grayscale’s lawyers explicitly write that:
“The Exchange Act and the APA require the Commission to treat BTC similarly to Bitcoin futures ETPs”.
“Having allowed Bitcoin futures ETPs registered under the 1940 Act to begin trading in recent weeks, the Commission may not deny listing approval for BTC by insisting upon a different, vague and evidently impossible-to-meet standard for spot Bitcoin ETPs”.
The rules violated
Such a decision, according to Grayscale’s lawyers, would in fact violate the APA’s Section 6(b)(5) injunction against unfair discrimination between issuers.
The APA requires the SEC to treat similar products in the same way unless it has reasonable grounds for treating them differently.
U.S. Congressman Tom Emmer also expressed his disagreement with this unequal treatment, calling the SEC’s approach to regulating cryptocurrencies “baseless & wildly inconsistent”.
Withholding approvals for Bitcoin spot ETFs only shows the SEC’s baseless & wildly inconsistent approach to regulating crypto. https://t.co/qnKkVoeQ3t
— Tom Emmer (@RepTomEmmer) November 30, 2021
In theory, the agency could rule on Grayscale’s request as early as December, but it is highly likely that it will postpone its decision as long as possible, as it has done in the past. A final decision is expected by the end of spring.