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Grayscale Files Response to SEC Amid New Proposal For GBTC

2 mins
Updated by Paolo Besabella
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In Brief

  • Grayscale described SEC's premise argument as illogical.
  • The crypto investment chief legal officer Craig Salm said the SEC arbitrarily applied its "significant market test."
  • Osprey Fund submitted a proposal to be GBTC's sponsor on January 13.
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Crypto investment firm Grayscale filed a response to the US Security and Exchange Commission’s (SEC) opposition to converting its Bitcoin Trust (GBTC) into a spot BTC ETF on Jan. 13.

The Bitcoin investment firm wrote that the SEC’s argument that the Chicago Mercantile Exchange (CME) provides adequate protection against fraud and manipulation in the BTC futures market but not the spot market is illogical.

Grayscale Says Manipulation on Spot Market Would Impact Futures

According to the firm, any fraud or manipulation in the spot market would affect the price of Bitcoin futures. Grayscale presented the correlation between the two products, adding how an action on one may affect the other. 

“Either CME surveillance can detect spot-market fraud that affects both futures and spot ETPs, or that surveillance cannot do so for either type of ETP.”

SEC Arbitrarily Applied its “Significant Market Test”

Grayscale’s chief legal officer Craig Salm further pointed out that the SEC arbitrarily applied its “significant market test.” Salm said the financial regulator applies the test relaxedly for futures Bitcoin ETFs. However, the same test is applied “strictly for spot bitcoin ETFs to get to a results-driven conclusion.”

“The test in and of itself exceeds the SEC’s statutory authority and is arbitrary and unreasoned. The test is deeply flawed, essentially rewarding BTC futures for being subject to two kinds of risks, while penalizing spot bitcoin for being subject to only one of those risks,” Salm said.

The legal officer concluded that the firm’s proposal to convert its trust into a spot ETF satisfies the law. He added that the ETF is designed to prevent fraud and manipulation while protecting investors and the public interest.

Grayscale is owned by the embattled crypto conglomerate Digital Currency Group (DCG).

Osprey Funds Submits Proposal For GBTC

Meanwhile, Greg King, the CEO of Osprey Fund, has submitted a proposal for GBTC. The CEO wrote a Jan. 13 open letter to DCG’s CEO Barry Silbert, asking him to name his fund as the sponsor of the embattled fund.

King wrote that his fund would slash GBTC’s management fee to 0.49% and clean up the fund’s structure. The CEO also stated that his firm would pursue a redemption program immediately and get it listed on the New York Stock Exchange (NYSE).

GBTC’s widening discount had narrowed to 36% as of press time.

Grayscale GBTC
Source: YCharts
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Oluwapelumi Adejumo
Oluwapelumi believes Bitcoin and blockchain technology have the potential to change the world for the better. He is an avid reader and began writing about crypto in 2020.