Grayscale Chief Legal Officer: A Spot Bitcoin ETF Will Protect U.S. Investors, Consumers

Craig Salm discusses what happens next after a court acts on its lawsuit against the SEC, and whether this regulator should even be involved with bitcoin products.

AccessTimeIconMar 8, 2023 at 8:37 p.m. UTC
Updated Mar 8, 2023 at 9:23 p.m. UTC
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There are many possible outcomes if a federal court rules in Grayscale's favor in its lawsuit against the Securities and Exchange Commission (SEC), said Craig Salm, Grayscale’s chief legal officer.

The lawsuit was filed by the CoinDesk sister company after the SEC rejected Grayscale's application to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund. Grayscale argued the futures-based bitcoin ETFs the SEC has already approved are fundamentally no different from the bitcoin-holding (spot) ETF Grayscale wants to offer.

"Futures derive their pricing from the underlying spot markets, given that they are derivatives of spot bitcoin," Salm said on CoinDesk TV’s “First Mover” on Wednesday. "If we're going to have bitcoin futures trading being approved by the SEC, how can we not also have spot bitcoin ETFs be approved as well?"

He added, "Is the commission acting arbitrarily and capriciously in violation of the Administrative Procedure Act? And are they discriminating against issuers in violation of the Exchange Act by approving bitcoin futures and denying spot bitcoin?"

On Tuesday a panel of judges on the D.C. Circuit Court of Appeals in Washington, D.C., seemed to agree with Grayscale's argument. The court is expected to issue its ruling in the next three to 12 months.

Should the court rule in Grayscale's favor there are several possible things that could happen next, according to Salm. “The commission could approve GBTC as a spot bitcoin ETF" as well as approve those spot ETFs from other companies that have been similarly rejected by the SEC.

"We think that’s really the right position,” he said.

"I think now we're seeing ... crypto is here to stay. Bitcoin is here to stay and we're not going to be able to ban it," he said. "Conversely, what can we do to further regulate and protect U.S. investors and consumers? Spot Bitcoin ETFs are one very key way to do that."

However, Salm said, there is also the possibility the SEC could “go back and continue to disapprove GBTC as an ETF on some new basis.” Or the SEC could rescind previously approved bitcoin futures ETFs. Salm said that outcome may come to fruition if the agency takes the stance of treating all bitcoin ETF products the same.

However, it is unlikely that the SEC will take that route, “given the amount of disruption” it would cause and the “lack of investor protections” that would result, Salm said.

Considering the SEC has already said it doesn't consider bitcoin to be a security, Salm said the Commodity Futures Trading Commission should be the agency involved with bitcoin products.

"We're all for more legislative actions that will bring more clarity to the asset class. Giving the SEC jurisdiction over spot bitcoin trading is not necessary to have a spot bitcoin ETF," he said. "Bitcoin is one of the cryptocurrencies that very clearly is not a security, it's a commodity and that's been stated by SEC and CFTC officials over many years.

"I think bitcoin as a commodity rightly belongs within CFTC jurisdiction," he said.

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