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Grayscale takes fresh angle in attempt to register Bitcoin spot ETF

By Kevin Donovan

22:07, 30 November 2021

Bitcoin ETFs
Bitcoin ETFs - Photo: Shutterstock

Grayscale Investments has shifted its strategy in a continuing quest to convert its Bitcoin spot-price-indexed Bitcoin Trust product into an SEC-registered exchange-traded fund (ETF), noting the regulatory body’s responsibilities under the Administrative Procedure Act (APA).

Specifically, law firm Davis Polk writes on behalf of Grayscale, by allowing three futures-indexed ETFs to trade but continually rejecting spot-price-indexed products constitutes an “arbitrary and capricious action within the meaning of Section 706(2)(a)” of the APA.

Citing Kirk vs the Commissioner of the Social Security Administration, an unrelated appeal by a plaintiff accused of fraud, the Davis Polk team quoted the judgement of the Fourth Circuit court of Appeals decision in February in the plaintiffs’ favour that, “A fundamental norm of administrative procedure requires an agency to treat like cases alike.”

Under the precedent law used in that case, Sterger vs Dept of Defense, the lawyers quote “indeed, a federal agency ‘can be said to be at its most arbitrary’ when it ‘treat(s) similar situations dissimilarly’.”

One of these things is not treated like the other

Specifically at issue is how the SEC treats futures-indexed ETFs registered under the Investment Company Act of 1940 differently than spot-price-indexed products attempting to register under the Securities Exchange Act of 1933.

Pointing out that under the Investment Company Act of 1940, the issuing entity may hold up to 60% of non-securities assets, such as futures, while under the Securities Exchange Act of 1933, the issuing entity may hold entirely non-securities assets, such as commodities – or in Grayscale’s assessment:  Bitcoin.

“Arguments citing the added protections of the ’40 Act vs. the ’33 Act or CME Bitcoin futures being more regulated than spot Bitcoin are misplaced in the context of Bitcoin ETF approvals,” noted Grayscale VP of Legal Craig Salm in a Twitter thread.


37,706.70 Price
-0.240% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00


0.01 Price
+20.360% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.0005306


2,036.63 Price
+0.030% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 6.00


0.61 Price
-0.970% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.01168

Using the SEC’s most recent denial of a Bitcoin spot-price-indexed ETF application earlier this month, Davis Polk lawyers note “Bitcoin futures (ETFs) registered under the 1940 Act and spot Bitcoin (products) that are not required or eligible to be so registered are the same in all relevant respects.”

“But based on the analysis in the November 12 2021 disapproval order, the Commission is treating them differently,” they argue.

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Not available to Grayscale

Salm noted this new approach was not available to Grayscale until both a futures-indexed ETF had been approved and a spot-price-indexed ETF conversion application had been rejected.

“The APA requires the SEC to treat ‘like’ situations ‘alike’ absent a reasonable basis for different treatment,” Salm continued. “This means the SEC must treat similarly situated investment products similarly – Bitcoin futures-based ETFs registered under the ’40 Act and Bitcoin spot-based ETFs registered under the ’33 Act – are an example of two ‘like’ situations that should be treated ‘alike’…but are no longer.”

New York, New York-based Grayscale is currently in a 240-day review process in an attempt to convert its Bitcoin Trust product – as well as 14 other cryptocurrency-indexed products – registered as an ETF over the NYSE Arca Exchange.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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