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Grayscale recently submitted a letter to the United States Securities and Exchange Commission (SEC) expressing concerns over the Surveillance Sharing Agreement (SSA) between Coinbase and asset managers pursuing a spot Bitcoin ETF.
The investment firm argues this agreement should not be the sole determinant in the regulator’s decision-making.
Grayscale Challenges Coinbase’s SSA
The crux of the SEC’s hesitance to approve a spot Bitcoin ETF largely hinges on concerns of potential market manipulation. While some believe the Coinbase SSA might be the key to swaying the SEC’s decision, Grayscale counters this belief.
Grayscale’s contention is that an SSA with Coinbase might fall short of meeting regulatory standards, given that Coinbase is not recognized as a registered securities exchange, broker-dealer, or futures exchange in the US.
Worldwide Interest in ETFs by Sector. Source: Statista
Recalling a precedent, Grayscale pointed out that the SEC had, in 2018, turned down an SSA with a spot Bitcoin trading venue because it was not a regulated market equivalent to a national securities exchange.
The investment firm’s letter quotes:
“In 2018, the Commission explicitly rejected the idea that a surveillance-sharing agreement with a spot Bitcoin trading venue could provide an alternative basis for satisfying Section 6(b)(5).”
Grayscale acknowledged the utility of insights derived from the SSA. Still, the firm highlighted that the SEC’s history indicates a preference for information from a regulated, sizeable market.
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ETF analyst Nate Geraci views Grayscale’s stance as potentially bullish for ETFs. He opined that Grayscale’s public letter, which critiques Coinbase’s surveillance-sharing agreements, indicates a positive trajectory for ETFs.
A Call for Unbiased Bitcoin ETF Approvals
Further in its communication, Grayscale championed the idea of the SEC embracing an approach that could pave the way for approving all recent Bitcoin ETF filings, even if they come from competitors. The firm emphasized the unfair advantage new approvals might bestow upon certain proposals, disrupting the first-mover advantage:
“Approving only the above-referenced proposals would reflect a positive but sudden and significant change… granting an unfairly discriminatory and prejudicial first-mover advantage to these proposals.”
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Consequently, Grayscale proposes that should the SEC green-light recent applications. The regulatory agency should concurrently approve the transition of Grayscale’s Bitcoin Trust into a spot Bitcoin ETF.
This comes amidst an ongoing legal contention between Grayscale and the SEC concerning the regulator’s denial of the firm’s Bitcoin Trust ETF conversion.
Grayscale’s chief legal officer, Craig Salm, stated:
“Whether the SEC ultimately approves a spot Bitcoin ETF following a Court mandate from our lawsuit or following the implementation of more SSAs, to promote investor protection, it should do so in a fair and orderly manner.”
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