Crypto investment firm Grayscale responded to protests from the US Security and Exchange Commission (SEC) by converting its Bitcoin Trust (GBTC) to a spot BTC ETF on January 13.
The SEC argues that the Chicago Mercantile Exchange (CME) provides adequate protections against fraud and manipulation in the BTC futures market, but not the spot market, the bitcoin investment firm wrote.
Grayscale says spot market manipulation will affect futures
According to the firm, any fraud or manipulation in the spot market will affect the price of bitcoin futures. Grayscale visualizes the relationship between the two products, adding how actions on one can affect the other.
“Either CME monitoring can detect spot-market fraud affecting both futures and spot ETPs, or monitoring cannot do so for either type of ETP.”
The SEC arbitrarily applied its “significant market test”
Craig Salem, Chief Legal Officer, Grayscale told The SEC arbitrarily applied its “significant market test”. Salam said the financial regulator relaxes the test for futures bitcoin ETFs. However, the same test is applied “strictly to spot bitcoin ETFs to derive an outcome-driven conclusion.”
“The test itself exceeds the SEC’s statutory authority and is arbitrary and unfair. The test is seriously flawed, essentially rewarding BTC futures for being subject to two types of risk, while spot Punishing bitcoin for being subject to just one risk.
The legal officer concluded that the firm’s proposal to convert its trust into a spot ETF satisfied the law. He said the ETF is designed to prevent fraud and manipulation while protecting investors and the public interest.
Grayscale is owned by troubled crypto conglomerate Digital Currency Group (DCG).
Osprey Funds Makes Offer for GBTC
Meanwhile, Greg King, CEO of the Osprey Fund, has come up with an offer for GBTC. The CEO wrote an open letter to DCG CEO Barry Silbert on January 13, asking him to name his fund as a sponsor of the distress call.
King wrote that his fund would reduce GBTC’s management fee to 0.49% and clean up the fund’s structure. The CEO also said that his firm would immediately carry out a redemption program and get it listed on the New York Stock Exchange (NYSE).
As of press time the GBTC wide discount had narrowed to 36%.
BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.