Grayscale Faults SEC Approval of a Leveraged Future Bitcoin ETF 

Grayscale is crying foul over the recent approval of leveraged Bitcoin futures exchange-traded fund (ETF), citing continued stonewalling of the spot Bitcoin ETF application. 

The company argues that there exists an insufficient difference for the US Securities and Exchange Commission (SEC) to approve the application by 2X Volatility Shares for a leveraged Bitcoin future ETF while denying its spot Bitcoin ETF. 

Grayscale criticism of SEC’s decisions coincides with a period when the ETF euphoria still wafts in the crypto and investment space. It features would-be investors of Bitcoin anticipating the inaugural approval of the ETF for spot markets. 

Fund Managers Confident of SEC’s Approval of Spot ETF

The spirits of fund managers and institutional investors anticipating the spot market ETF rose following the SEC’s nod to the 2X Volatility Shares application for leveraged Bitcoin futures ETF. The product is scheduled to start trading on June 23. The move attracts support from observers considering the approval as geared toward the right direction. 

The news illustrating the approval of the ETF delivered a bittersweet feeling for Grayscale. The firm is among contenders seeking approval of spot ETF repeatedly denied by the SEC. 

Grayscale attorney Donald Verilli, who represents the firm in the ongoing legal battle against SEC, questioned the grounds for approving the Volatility Shares ETF. He submits that approving the ETF contradicts the stance against funds in spot markets. 

Verilli penned a letter on Monday, July 10, addressing the Court of Appeals clerk in Washington DC of SEC’s arbitrarily treating applications for spot Bitcoin EFTs from leverage futures variance. 

Grayscale Attorney Questions SEC’s Inconsistent Approval Process

The letter leans towards the stance adopted by the asset manager in the lawsuit Grayscale initiated against SEC. Verilli alleges the Commission is acting unfairly in the approval process. The legal battle started in June 2022 when Grayscale accused the SEC of rejecting the application seeking Grayscale Bitcoin Trust (GBTC) conversion into the Sport ETF. 

The SEC dismissed Grayscale’s submission indicating the Grayscale application lacks a plan to monitor the effect that fraud and market manipulation would have on the spot prices. Grayscale disapproved of this claim by illustrating that future princes are subject to spot markets. The plaintiff’s stance garnered support from the federal judge during the lawsuit hearing in March. 

Verilli’s letter indicates that approving the 2X Volatility Shares ETF affirmed that SEC operates inconsistently. The letter suggests that the interlink to the futures markets via leverage to optimize returns would ultimately expose investors to heightened risk than spot and conventional futures ETF. The approval, therefore, invalidates SEC’s rationale to oppose Grayscale’s filing. 

Verilli holds that the Gary Gensler-chair commission could offer theoretical correction of the discriminatory treatment of Spot bitcoin ETFs. Such would involve rescinding all denied approvals for spot ETFs. The apparent willingness to allow leveraged bitcoin ETF exposes the investors to a risker version of the futures product. The decision shows the Commission lacks the intention to do so. 

Journey to Pursue Approval of EFT’s Application

Volatility Shares president Justin Young lauds Grayscale’s application as the pioneer for recent entrants, such as Fidelity and BlackRock, seeking the spot ETFs. He restates his belief that the recent approval for the Volatility Shares’ ETF would fuel the acceptance of one spot market product. 

Young reiterated that the majority of investors would question SEC’s approval process. He questions why the SEC would vary in its decision to allow leveraged Bitcoin-affiliated products and deny spot Bitcoin. 

Grayscale supports Vitality Share’s co-founder’s view insisting that it was not disapproving of the existence of leveraged ETF products. Instead, Grayscale and its legal team are motivated to question the approval process deployed by the SEC.  

The Grayscale executives expressed the excitement that ETF products will satisfy the eagerness demonstrated by investors for BTC exposure integrated with safeguards guaranteed by the ETF wrapper.

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