First Mover Americas: BTC Down 40% in June; SEC Rejects Grayscale’s BTC ETF Application

Good morning, and welcome to First Mover. I’m Lyllah Ledesma, here to take you through the latest in crypto markets, news and insights.

Pessimism took over the crypto market in June, and bitcoin (BTC) suffered its worst monthly returns, according to data going back to 2013. The world’s largest cryptocurrency by market capitalization traded down 40% on the month.

June has been historically volatile for bitcoin, but this month has redefined the worst case.

BTC was trading around $19,000 at press time, after dipping to $18,900 briefly. The cryptocurrency is down 5% over the last 24 hours.

The U.S. Securities and Exchange Commission (SEC) rejected Grayscale's application to convert its Grayscale Bitcoin Trust to an exchange-traded fund (ETF) Wednesday. Grayscale is a subsidiary of CoinDesk parent company Digital Currency Group.

Florian Giovannacci, head of trading at Covario AG, said that, looking forward, if equities can find a floor with less troublesome inflation data and crypto lenders stop “falling” one after the other, July might look brighter for the crypto market.

“Unfortunately I am afraid we might only get one of the two,” Giovannacci said.

Data from Coinglass shows that the previous worst-performing month was in November 2018, when bitcoin dropped by 37%.

Altcoins also took a large hit in June, with ethereum (ETH) losing 47%. Avalanche’s AVAX lost 40%, polygon (MATIC) was down 35% and solana (SOL) took a 31% hit.

Data from CryptoCompare shows that since May, total assets under management (AUM) across all digital-asset investment products has fallen 36% to $21.6 billion. (The data goes through June 23.)

The AUM in bitcoin funds specifically fell 33.7% to $15.9 billion; however, they continued to gain market share, currently at 73.6% of total AUM, up from 70.1% in May.

The AUM in ethereum-focused funds dropped 46.7% to $4.54 billion, according to CryptoCompare.

By Nikhilesh De

Grayscale Sues SEC Over Bitcoin ETF Application Rejection

Grayscale Investments has sued the U.S. Securities and Exchange Commission (SEC) barely an hour after the regulatory agency rejected its application to convert its flagship Grayscale Bitcoin Trust product to an exchange-traded fund (ETF).

The SEC rejected Grayscale's application earlier Wednesday, citing concerns about market manipulation, the role of Tether in the broader bitcoin ecosystem and the lack of a surveillance-sharing agreement between a "regulated market of significant size" and a regulated exchange, echoing concerns the regulator has expressed for years in rejecting other spot bitcoin ETF applications.

Grayscale is a subsidiary of CoinDesk parent company Digital Currency Group.

In the filing, Grayscale simply asks the U.S. Court of Appeals for the District of Columbia Circuit to review the SEC's order.

The investment firm announced it was prepared to sue the SEC in the event of a rejection earlier in 2022, saying it would file a proceeding tied to the Administrative Procedures Act. To that end, Grayscale tapped former Solicitor General Don Verrilli, who has experience in APA proceedings.

“Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation – and we are deeply disappointed by and vehemently disagree with the SEC's decision to continue to deny spot Bitcoin ETFs from coming to the U.S. market,” Grayscale CEO Michael Sonnenshein said in a statement Wednesday.

Essentially, the company will argue that the SEC has to allow products that are like other products already trading, in this case bitcoin futures ETFs.

Verrilli told reporters earlier in June that the SEC's approval of futures ETFs indicate the underlying market must be seen as reliable.

"This is a place where common sense has a really important role to play. You've got a situation now in which you have certain kinds of exchange traded funds, one that is focused on bitcoin futures, and the SEC has approved that, the SEC is given it the seal of approval," he said. "In order to do so it had to make a determination that that giving this approval was consistent with the securities laws, and in particular, that that there wasn't a sufficient underlying risk of fraud and manipulation."

To date, only a handful of bitcoin futures ETFs have been approved to trade. Spot bitcoin ETFs trade based on the price of bitcoin itself, while futures-based ETFs trade based on the price of CME's bitcoin futures product (which in turn is tied to an index). Bitcoin ETF proponents argue that the futures markets are still based on the underlying spot bitcoin price, while the SEC notes that CME's futures market is regulated by the Commodity Futures Trading Commission (CFTC), a fellow federal agency.

Today’s newsletter was edited by Parikshit Mishra and produced by Stephen Alpher.