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SEC Rejects Grayscale ETF as Hong Kong Debuts See Gains

2 mins
Updated by Ryan Boltman
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In Brief

  • Grayscale’s bid to have its Bitcoin fund turned into an exchange-traded fund was rejected for the second time by the Securities and Exchange Commission.
  • Grayscale sued the SEC after it rejected the proposal for the first time earlier this year.
  • HongMeanwhile, crypto-based ETFs in Hong Kong had solid debuts earlier today.
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The Securities and Exchange Commission has reaffirmed its decision to reject Grayscale’s application for a Bitcoin exchange-traded fund (ETF).

The federal regulator reiterated that it believes such products are prone to fraud and manipulation. It had previously rejected Grayscale’s proposal to convert its Bitcoin Trust into an ETF in June earlier this year. 

Grayscale Sues the SEC

Grayscale argued that the SEC was discriminating against ETFs investing in spot Bitcoin. Upon receiving the rejection, Grayscale sued the SEC. It claimed the regulator was applying an unfair double standard by allowing exclusively Bitcoin futures ETFs on the market.

Grayscale says the SEC violated the Administrative Procedure Act and the Securities Exchange Act of 1934. It further accused the commission of discriminating between issuers of the two types of ETFs on an “arbitrary and capricious” basis. Grayscale added that by creating this “uneven playing field,” the SEC was putting its shareholders at an unfair disadvantage.

Meanwhile, in its reply brief, the SEC also repeated its reason for approving Bitcoin futures ETFs. While spot bitcoin ETFs lack a level of federal oversight, Bitcoin futures ETFs are monitored closely by the Chicago Mercantile Exchange. The SEC said it would distinguish between different types of crypto products because of the distinct risks each posed for investors. 

Hong Kong Crypto ETFs

The extent of these consumer safeguards is the reason why authorities in Hong Kong have also approved them. Hong Kong’s first crypto-based ETFs debuted earlier today, finishing their first trading day higher. Local CSOP Asset Management manages both products, which invest in bitcoin and ether futures listed on the CME exchange. These are currently the only ones permitted by Hong Kong’s Securities and Futures Commission (SFC). 

While open to cryptocurrency companies, the SFC is also keen to protect consumers, having previously issued warnings about virtual asset platforms. Recently, the SCF’s incoming executive said that crypto required stricter regulation.

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Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.
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