Grayscale spot ETF susceptible to “fraud and manipulation”, says SEC, reiterates its rejection

• Grayscale recently filed a lawsuit against the Securities and Exchange Commission, citing “unfair” and “harsh treatment” towards spot ETF.
• The Securities and Exchange Commission filed its reply brief claiming lack of oversight over spot ETFs make them prone to fraud and manipulation.
• Grayscale Bitcoin Trust premium declined to its worst ever figure of 48.89% earlier this week.

Grayscale is known to be a leader in the crypto space thanks to its Grayscale Bitcoin Trust (GBTC) and other Exchange Traded Funds (ETFs). However, the firm has been unable to gain the Securities and Exchange Commission’s (SEC) approval for a Bitcoin spot ETF for a very long time. Now Grayscale is facing heat from the regulatory body for the actions it took in June this year.

Grayscale vs. Securities and Exchange Commission

Grayscale filed a lawsuit against the Securities and Exchange Commission earlier this year for the rejection of its Bitcoin spot ETF. The regulatory authority’s decision was considered unfair by Grayscale as it believed that the SEC treated such ETFs with “special harshness”. 

This week in response to Grayscale’s opening brief, the SEC reiterated its stand on spot ETFs, stating that it lacks federal oversight. Unlike Bitcoin Futures ETFs, which are monitored by the Chicago Mercantile Exchange (CME), spot ETFs are yet to find regulation. This makes them vulnerable to fraud and manipulation.

The commission remained unmoved despite attempts at reassuring safety from NYSE Arca, the index where Grayscale’s spot ETF is supposed to be listed. The index noted that by using an advanced algorithm, aberrant trading activity could be eliminated. However, the SEC stated that these provisions are not enough, given Bitcoin itself is an unregulated entity. 

The SEC argued that it did not treat spot ETFs with harshness as they differ from futures ETFs, posing different risks to the investors and thus should be treated accordingly.

Grayscale Bitcoin Trust falls to its lowest

The Grayscale Bitcoin Trust is the most well-known product from the investment firm. However, trading at a discount of 47.85% from its net asset value (NAV), GBTC is barely away from its worst ever. Earlier this week, the GBTC discount peaked as it rose to 48.89% before recovering slightly to 47.85%.

Grayscale Bitcoin Trust discount

Since this week has been the lowest point for GBTC, the only possible path from here on must be up. Unless the broader market cues turn extremely bearish, GBTC will have a chance at recovery.

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