Grayscale CEO: Bitcoin gains show a ‘flight to quality’ amid economic uncertainty

In August, a federal court ruled that the SEC’s decision to approve two bitcoin futures funds, but to deny Grayscale’s application to convert its bitcoin trust
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product into a bitcoin spot ETF, was “arbitrary and capricious” and in violation of federal administrative law.

Read: First bitcoin ETF must be reconsidered by SEC, court rules

The SEC had denied Grayscale’s application on the basis that bitcoin

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spot markets could not be sufficiently surveilled to prevent fraud and manipulation, while bitcoin futures markets were overseen by registered futures exchanges with sophisticated surveillance capabilities.

Grayscale successfully argued that because bitcoin futures prices closely tracked bitcoin spot markets, that it was illegitimate to distinguish between the two.

Sonnenshein said he thinks the SEC is coming around to the idea that allowing a bitcoin ETF will be a positive for investor protection rather than something that puts average investors at risk.

“We have almost one million investors across all 50 states, and by uplisting GBTC to the ETF wrapper, it can provide additional regulatory oversight and investor protection,” he said.

“The SEC is a disclosure-based regulator, not a merit-based one,” he added. “They should be insuring that all the appropriate risks are outlined and disclosed to investors, as opposed to choosing what is or isn’t appropriate for investors.”

Now see: ‘Fraudsters, hucksters and scam artists’: Gensler defends SEC track record on crypto in wake of FTX scandal.

Sonnenshein believes his company has the inside track on both winning approval to convert its bitcoin trust product into an ETF and gaining the public’s trust as the go-to provider of crypto ETF products.

He noted that Grayscale’s Bitcoin Trust has voluntarily provided disclosures to the public as an SEC reporting company since 2021 and that puts it at an advantage to other issuers “who are starting products from scratch, with no track record, no assets and no investors.”

Another tailwind for Grayscale has been bitcoin’s price action of late, as the world’s most popular cryptocurrency has rallied more than 130% from its lows in November of last year, following the collapse of FTX.

“Bitcoin volatility has dampened quite a bit, and this is yet another example of investors flocking to assets like bitcoin as a flight to safety or a flight to quality in the wake of rising geopolitical tensions, and rising interest rates,” Sonnenshein said. “Bitcoin now presents another tool at their disposal, where historically they’ve probably looked at things like currencies and bonds.”