Cryptocurrency exchange Coinbase sent a letter to the US Securities and Exchange Commission (SEC) to approve the conversion of Grayscale’s Bitcoin Trust (GBTC) into an exchange-traded fund (ETF).
In its letter, Coinbase said that GBTC is already a tried and tested way for retail investors to gain exposure to Bitcoin at prices closely reflecting spot BTC price without holding the crypto asset themselves.
GBTC shares are held in more than 600,000 retail and institutional brokerage accounts in all 50 states, it noted, adding that in 2019, GBTC was the 5th largest holding in millennial retirement accounts, ahead of Microsoft, Disney, and Berkshire Hathaway.
But in its current structure, GBTC shares are not eligible for redemptions which leads them to trade at premiums or discounts. And this issue can be solved by approving Arca's proposal, it said.
In its statement in support of Arca’s proposal, Coinbase said the proposal also addresses SEC’s concerns of fraud and manipulation as it relies on Bitcoin’s underlying price in the spot markets.
Because a futures-based ETP and spot Bitcoin ETP both are reliant on Bitcoin’s spot price, “we believe ETPs that invest in Bitcoin futures contracts present a substantially similar risk of manipulation as a spot Bitcoin ETP,” said Coinbase, which has 73 million verified users.
In October, SEC approved the first futures-backed Bitcoin ETF on the grounds that it offers greater investor protection while it has yet to approve a single ETF in the last eight years since the first application was filed.
According to Arca’s proposal, while Bitcoin itself isn’t inherently resistant to fraud and manipulation, the Index represents an effective means to prevent such practices.
Much like Grayscale itself, Coinbase argues that spot Bitcoin ETPs shouldn’t be treated differently than futures-based ETPs, and a rejection of Arca's proposal would be “in direct conflict” with that.
“The Commission’s resistance to making such a conclusion with respect to a spot ETP does not appear warranted by public interest and investor protection policy considerations.”
And if the SEC applies different standards for the products, such a treatment may “undermine confidence” in the agency as a neutral administrator, which may further stifle innovation. Coinbase said,
“Market participants should not be left guessing about what criteria the Commission will employ when reviewing a specific product, nor should market participants be left in the dark with respect to what evidence is necessary to gather and present to the Commission when seeking approval for a novel product. This lack of consistency seems to us, unfair and is without policy justification.”
