Grayscale CEO calls SEC ‘shortsighted’ after regulator’s comments

The CEO of the investment firm that operates the world’s largest Bitcoin fund has given comments from Securities and Exchange Commission Chairman Gary Gensler on the likely path of approval for the first U.S. Bitcoin ETF.

Michael Sonnenshein, CEO of Grayscale Investments, warned Tuesday that the SEC would make a mistake if it approves an ETF based on Bitcoin futures over an ETF tied to the cryptocurrency itself. His firm has attempted to convert the massive Grayscale Bitcoin Trust, which owns Bitcoin and no contracts tied to its future price, into an ETF.

“It would be short-sighted by the SEC to bring a futures-based product to market before a spot product,” Sonnenshein told CNBC’s “Squawk Box” on Tuesday. “You should really be bringing both products to market at the same time, giving investors the choice they want.”

Last month, Gensler signaled his preference for considering applications from investment firms wishing to launch ETFs tied to Bitcoin futures traded on the Chicago Mercantile Exchange. That’s an alarming development for Grayscale, which has been trying to convert its Bitcoin trust into an ETF since 2016. The approval of the first Bitcoin ETF in the US is seen as a crypto milestone as it would help in the introduction of the emerging asset class.

During the “Squawk Box” discussion and in a subsequent telephone interview, Sonnenshein warned of possible downsides to the SEC’s position. A futures-based ETF would cost investors more fees due to the inherent cost of renewing futures contracts after they expire, Sonnenshein said.

Additionally, investors who want a mutual fund that more closely tracks the price of Bitcoin could gravitate towards a futures-based ETF that could siphon capital out of the flagship Grayscale product, he said. That’s one of the main reasons Grayscale wants to convert its fund, known under the ticker GBTC, into an ETF. As currently constructed, the fund can be traded at a discount or premium on Bitcoin itself.

“If a futures-based ETF comes to market without GBTC having the option to convert to an ETF, it can do so to both those who now hold tens of billion dollars in GBTC and those who have exposure have harmed GBTC in mutual funds, pension accounts and other places, “said Sonnenshein in a telephone interview.

Overall, he viewed the SEC’s stance as bullish on Bitcoin, because if regulators are familiar with derivatives tied to the cryptocurrency, it suggests they are okay with the underlying asset class.

Grayscale’s Bitcoin Trust manages $ 32.4 billion in assets and holds more than 3% of the available Bitcoin supply, Sonnenshein said.

The SEC did not immediately respond to a request for a response to Sonnenshein’s comments.

This story evolves. Please check again for updates.

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