Grayscale Claims Coinbase Won’t Work As A Bitcoin ETF Surveillance Partner

Grayscale Claims Coinbase Won't Work As A Bitcoin ETF Surveillance Partner

Grayscale wrote a letter to the U.S. Securities and Exchange Commission (SEC) on Thursday calling for the agency to simultaneously approve any qualifying Bitcoin spot ETF applications, so as to not “pick winners and losers.”

However, the firm also argued that Coinbase shouldn’t qualify as a surveillance partner to launch such a product, under the SEC’s pre-established rules.

Why Coinbase Isn’t Good Enough

Per the comment letter, the SEC has already questioned the pricing data produced by ‘unregulated’ Bitcoin trading venues for years.

Grayscale referenced the SEC’s explicit denial of the GraniteShares ETP Trust in 2018, which intended to form a surveillance-sharing agreement (SSA)with Gemini’s exchange. The SEC determined that Gemini did not represent a regulated market comparable to a national securities exchange.


The firm also pointed out the SEC’s rejection of Grayscale’s ETF application last year showed that the SEC wouldn’t give weight to market data sourced from a group of spot Bitcoin exchanges, including Coinbase. Oversight from both NYSDFS and FinCEN, alongside BitLicense regulation, was deemed irrelevant to whether the SEC would consider the group sufficient for an SSA.

“We believe the Commission’s prior decisions have already determined that such an agreement with a venue lacking compulsory investigative authority and oversight by a comprehensive market, regulator does not satisfy Section 6(b)(5) in the absence of a surveillance sharing agreement with a market of significant size,” wrote Grayscale.

Grayscale clarified that it was not “disputing the usefulness of information obtainable under a surveillance-sharing agreement with a spot bitcoin trading venue.”

Grayscale’s Court Battle

Starting in late June, multiple asset managers – including BlackRock – filed with the SEC to launch a spot Bitcoin ETF. Many of those firms later named Coinbase as their ideal partner for an SSA to protect against market manipulation, an element of each filing that no applicant has managed to get right by the SEC thus far.

Unlike its friendlier competitors, Grayscale is attempting to convert its Bitcoin fund into an ETF by directly challenging the SEC in court. The company stands by its thesis that CME Bitcoin Futures represent a market of sufficient size related to the Bitcoin spot market, sufficient for an SSA.

Should the SEC change its mind and approve a Coinbase-partnered ETF, Grayscale said that the agency should at least prioritize investors first – specifically those of its GBTC fund.

“The Commission would be required to afford the listing exchange for the Trust (and all other spot bitcoin ETPs whose Rule 19b-4 filings were previously disapproved) the opportunity to amend their Rule 19b-4 filings, so that all of these spot bitcoin ETP proposals can be approved simultaneously,” the company stated.

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