Support for a Spot Bitcoin ETF grows as the agency maintains its current course

In a letter to US Rep. Tom Emmer, SEC Chair Gary Gensler stated that he is “technology-neutral.”

Gary Gensler, Chair of the Securities and Exchange Commission, stated that his agency must consider whether a spot bitcoin ETF is designed to prevent fraudulent and manipulative acts and practices.

In public comments to the SEC, nearly 100 people have weighed in on Grayscale Investments’ proposed conversion of its Bitcoin Trust to an ETF.

As the Securities and Exchange Commission continues to refuse to approve a spot bitcoin ETF, a growing number of industry participants are urging the regulator to reconsider.

Grayscale Investments’ proposal to convert its bitcoin trust to an ETF is the most recent battleground (exchange-traded fund). After the first bitcoin futures ETF began trading in October, the firm filed to convert the $28 billion Grayscale Bitcoin Trust (GBTC) to an ETF.

During the SEC’s 240-day review period, which ends in July, the agency is seeking public input.

Embree Financial’s Andrew Farinelli, a private wealth advisor, wrote to the SEC that the conversion would lower costs and improve security for bitcoin investors. Embree, based in Chicago, has about $1.5 billion in revenue and 85 institutional clients as well as 300 families.

“Their accounts and investments would frequently be fully protected under the FDIC, custodian at a trusted institution — [such as] Charles Schwab — and investment itself would be safer under the SEC’s regulation of ETFs,” Farinelli wrote. “Finally…this enables investment professionals such as myself to provide the best advice to their clients and investors in general.”

Meanwhile, SEC Chair Gary Gensler has given bitcoin ETF hopefuls little reason to be optimistic. In his most recent public statement, Gensler wrote a letter to US Rep. Tom Emmer, R-Minn., on Tuesday, claiming that the “different holdings” of bitcoin spot and futures products have resulted in “different regulatory outcomes.” Gensler stated that he is “technology-neutral” about the outcome.

“When considering previous proposals to list bitcoin spot ETPs, the commission must apply all of the Exchange Act standards that it has followed in connection with its orders considering previous proposals to list bitcoin spot ETPs,” Gensler wrote. “The commission must specifically consider whether the bitcoin spot ETP proposal is intended to prevent fraudulent and manipulative acts and practices.”

The letter followed a November letter to Gensler from Emmer and Rep. Darren Soto, D-Fla., in which they stated that the agency’s approval of a futures ETF should be interpreted as approval of a spot product.

“We do not understand the SEC’s views on the perceived material difference in risk profiles,” Emmer and Soto wrote. “Both the futures and spot bitcoin markets are inherently intertwined and bear the same risks regarding fraud and manipulation.”

The stakes are getting higher. According to a recent survey, the percentage of financial professionals investing client funds in cryptocurrency has increased from 9% to 15% in the last year.

Sixty percent cited regulatory concerns as a barrier to starting or increasing their crypto allocation, while 32 percent cited a lack of easily accessible investment vehicles, such as ETFs.

The argument of industry titans like Coinbase is that a spot ETF would lead to an increase in safe retail investment in bitcoin.

In December, Coinbase’s chief legal officer, Paul Grewal, also wrote a letter in support of the conversion.

“We believe investors should have access to GBTC in an ETP format because it provides a tried and tested way for retail investors to gain exposure to bitcoin at prices that closely reflect spot Bitcoin trading prices without actually holding it,” Grewal wrote.

Grewal was one of more than 100 people who wrote in support of the Grayscale conversion.

“This issue remains a priority for us, and we will continue to supervise the SEC in its mission to maintain fair and orderly markets and facilitate capital formation,” Emmer said on Twitter on Thursday.

A request for further comment from Emmer’s spokesperson was not immediately returned.

The recent flood of public comments comes after Grayscale Investments’ attorneys called the agency’s decision to approve a futures-based fund rather than a spot ETF “arbitrary and capricious.”

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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