It sounds a bit like a strategy straight out of Sun Tzu’s “The Art of War.”

One of the cardinal rules recommended by the Chinese military strategist and philosopher: make your opponent understand that he has no chance of getting away with it if you engage in combat – a psychological victory of sorts.

This is the strategy bitcoin evangelists seem to have taken vis-à-vis the US Securities and Exchange Commission.

What’s at stake: Getting the market watchdog to approve cash exchange-traded funds, or ETFs, based on actual bitcoin holdings. The SEC has so far refused to do so, even though it approved the first ETFs based on bitcoin futures in October.

Illogical, say bitcoin evangelists. Faced with the agency’s stubbornness, they decide to assail it with repeated demands and requests. The goal is to put pressure on the federal agency to give in once it has exhausted all its arguments.

The latest episode is about Grayscale Investments wanting to convert their Grayscale Bitcoin Trust (GBTC) – Get the Bitcoin Trust ETF report in grayscale in a bitcoin cash exchange-traded fund.

What is the SEC worried about?

The company had filed its case in October and was expecting a response from the SEC in December. When the time came to give its answer, the SEC granted itself an additional 45 days and finally issued its verdict in early February.

That’s not really a straight answer since the SEC has opened a 21-day period for public comment and an additional 14 days to respond.

The regulator is concerned about the risks of manipulation as well as the liquidity and transparency of the bitcoin market. The SEC questions how Grayscale will handle potential price manipulation.

“The Commission invites comment on the following matters and asks commentators to submit data, if any, to support their views,” the SEC wrote in its notice.

The agency added: “What is the opinion of commentators on whether the proposed trust and shares would be susceptible to manipulation? What is the general opinion of commentators on whether the proposed the Exchange is designed to prevent fraudulent and manipulative acts and practices?

“What are the opinions of commentators in general regarding the liquidity and transparency of bitcoin markets, the susceptibility of bitcoin markets to manipulation, and therefore the suitability of bitcoin as an underlying asset for an exchange-traded product? ?”

A few days earlier, the SEC had also delayed its response to a similar request from Bitwise for the same reasons. The agency gave Bitwise 21 days to address its concerns. Bitwise Investments wants to turn Bitwise Bitcoin ETP Trust into a spot bitcoin ETF.

A yes answer is unlikely

While one cannot guess in advance what the SEC’s answer will be in either case, the track record shows that it should be no.

The SEC in recent months has rejected applications from several funds – WisdomTree, Fidelity Investments and SkyBridge Capital. Skybridge is headed by Anthony Scaramucci, the short-lived White House communications director under President Donald Trump.

At the end of October 2021, after years of waiting, the SEC finally let one of the many bitcoin ETF projects submitted to it pass, and then others afterward. But all these authorized ETFs have the particularity of being based on bitcoin futures, and not on real underlying bitcoin reserves (spot ETFs).

VanEck both benefited and suffered from this SEC dichotomy, being accepted for a bitcoin futures ETF and being denied a bitcoin spot ETF almost simultaneously.

But instead of being discouraged, all these digital asset management pioneers are stepping up their efforts and are determined not to give up.

“We believe converting $GBTC to a #Bitcoin Spot ETF is in the best interests of investors. As we work towards this goal, read some of the ongoing legal and regulatory issues,” Grayscale, a unit, tweeted. of Digital Currency Group. recently.

Grayscale is not shy about asking for the public’s help and support.

“Excellent question. If you would like to share your thoughts with the SEC on whether $GBTC should be allowed to convert to an ETF, visit this link and click “Submit Comments on SR-NYSEArca-2021-90”, “the company posted on Twitter.

Why is it so important to convert Bitcoin fiat funds to spot ETFs?

Converting their bitcoin funds into spot ETFs would allow them to maintain their edge in cryptocurrency investing as other companies look to make similar moves.

Pioneers in digital asset management have long been the few options for investors seeking exposure to bitcoin through the stock market. But that changed when the SEC cleared bitcoin futures ETFs.

In addition, other countries, including Canada, have already taken the plunge. Ottawa approved its first bitcoin cash ETFs a year ago.

US digital asset management pioneers could lose their competitive edge as a result. The surge in bitcoin prices has made many institutional investors want to invest in it. They then turned to the few digital asset managers, creating an imbalance between supply and demand.

But the approval of spot bitcoin ETFs elsewhere is pushing investors to liquidate their positions in these trusts.

These trusts also fear being less competitive as the new funds would normally charge less.

In addition, investors subscribing to new shares issued by a trust must wait six months before they can trade the shares on the secondary market, while ETF investors do not face this type of restriction.

Although anyone can buy and own bitcoins today, it remains difficult for regular investors with brokerage accounts to manage cryptocurrencies as part of their portfolios.

Grayscale Investments, for example, currently only trades through the OTC market. But if it became an ETF, it would move to national exchanges like the New York Stock Exchange and the Nasdaq.

Shortly after the conversion, the price gap with bitcoin – whether premium or discount at the time – would likely disappear. This means that investors who bought the fund at a discount could see gains regardless of bitcoin price swings.

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