Ben Strack

<div id="highlights-block_6266f429ee1c4" class="highlights">
 <ul>
 <li>Attorneys cite SEC’s Teucrium bitcoin futures ETF approval in latest letter to regulator</li>
 <li>The bitcoin ETF landscape is “unfair and discriminatory” against GBTC shareholders, Grayscale chief legal officer says</li>
 </ul>
 
</div>



Lawyers representing crypto investor firm Grayscale Investments have updated their letter to the SEC a few weeks after the agency’s decision to approve a bitcoin futures ETF.



Attorneys for Davis Polk &amp; Wardwell LLP <a href="https://cms.blockworks.co/grayscale-attorneys-argue-sec-for-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">previously argued</a> to the SEC that the regulator’s decision to approve a futures-based fund and not a spot ETF is “arbitrary and capricious” — and therefore in violation of the Administrative Procedure Act (APA).



Grayscale is trying to convert its Bitcoin Trust (GBTC) to an ETF, and the SEC’s decision on that proposal is expected in July.&nbsp;



Following its approval of several bitcoin futures ETFs in October, the watchdog <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">greenlighted another such fund</a> filed by fund group Teucrium. Unlike the others, which were filed under the Investment Company Act of 1940, the Teucrium vehicle was filed under the Securities Act of 1933 — the very regulation under which spot bitcoin ETFs are filed.



The Grayscale lawyers argued in their <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-20123987-280130.pdf" target="_blank" rel="noreferrer noopener">latest letter</a> that the Teucrium decision confirms that 1940 Act registration is not a basis for the Commission to approve one product and reject another. 



“The commission’s prior disapprovals of spot bitcoin ETPs have not identified any distinct and significant additional risk of fraud and manipulation that is somehow specific to spot bitcoin ETPs, and none exists,” the attorneys wrote.



GBTC, which launched in 2013, has $25.3 billion in assets. The trust has consistently traded at a discount, and more than 3,000 letters <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm" target="_blank" rel="noreferrer noopener">have been submitted</a> to the SEC advocating for its conversion.



“As it stands, the Bitcoin ETF landscape is unfair and discriminatory against GBTC shareholders and all of the other US investors looking for an accessible and efficient way to gain their Bitcoin exposure,” Grayscale Chief Legal Officer Craig Salm wrote in <a href="https://grayscale.com/unpacking-the-news-another-new-argument-for-a-bitcoin-etf/" target="_blank" rel="noreferrer noopener">a Monday blog post</a>. “We look forward to engaging further with the SEC on this matter.”



Cassandra Lentchner, president of institutional crypto platform BitGo, was among the latest to write the SEC in support of GBTC’s proposed conversion. Paul Grewal, Coinbase’s chief legal officer, made arguments in a December dispatch.



Lentchner called the regulator’s concerns around manipulation “misplaced,” noting bitcoin’s market capitalization of $750 billion and trading volumes of tens of billions daily.



“An ETF with redemption capacity would be able to more closely track current prices,” Lentchner wrote. “There is no basis to permit an investment in a future contract but not the asset itself.”



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Grayscale Lawyers Again Urge SEC to Approve GBTC Conversion to Bitcoin ETF

<div id="highlights-block_62602e05293fa" class="highlights">
 <ul>
 <li>Hashdex brand could help Teucrium differentiate its product from competitors, Bloomberg Intelligence analyst says</li>
 <li>Industry eyes have been on the fund, which recently gained SEC approval and was filed under the same regulation under which spot bitcoin ETFs are filed</li>
 </ul>
 
</div>



The first bitcoin futures ETF to gain SEC approval under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed — is apparently seeking to change its name.



The proposed Teucrium Bitcoin Futures Fund, which was <a href="https://www.sec.gov/Archives/edgar/data/0001471824/000165495421006095/TeucriumBCFU_S1.htm" target="_blank" rel="noreferrer noopener">first filed</a> last May, was referred to as the Hashdex Bitcoin Futures ETF in a Monday <a href="https://www.sec.gov/Archives/edgar/data/1471824/000165495422005090/bitcoin_s-1.htm" target="_blank" rel="noreferrer noopener">regulatory disclosure</a>.



Hashdex, a Brazil-based asset manager, was not named in the original May 2021 filing. Teucrium Trading remains the sponsor of the fund, the latest document indicates, and the specific role Hashdex will play for this fund is unclear.



A Teucrium spokesperson declined to comment beyond the filing. A representative for Hashdex did not immediately return a request for comment.



Bloomberg Intelligence ETF Analyst Eric Balchunas flagged the name change in <a href="https://twitter.com/EricBalchunas/status/1516134901493424139" target="_blank" rel="noreferrer noopener">a Twitter post</a>, noting that it could signal a partnership similar to one between Ark Invest and 21Shares. 



The two firms <a href="https://cms.blockworks.co/ark-files-for-bitcoin-etf/" target="_blank" rel="noreferrer noopener">filed to launch</a> the ARK 21Shares Bitcoin ETF last year. While 21Shares, the largest issuer of crypto exchange-traded products, is listed as the sponsor of the trust, the regulatory disclosure states that Ark “provides assistance in the marketing of the shares.”



The Ark brand, associated with investments in disruptive innovation, carries weight among many investors in the US despite year-to-date negative returns across its products. The firm has nine ETFs trading in the US with combined assets under management of roughly $20 billion.



This appears to be the first collaboration between Teucrium and Hashdex. Bloomberg Intelligence ETF Analyst James Seyffart said the arrangement seems to benefit both firms.



“Hashdex brings a crypto brand name to the product for Teucrium — so might help them differentiate a little bit,” Seyffart told Blockworks. “Also it allows Hashdex to get a foot in the door of the US ETF ecosystem.”



As for branding, Hashdex has made headlines in recent months for launching <a href="https://cms.blockworks.co/brazil-based-hashdex-expects-to-launch-first-defi-etf-next-month/" target="_blank" rel="noreferrer noopener">decentralized finance (DeFi)</a> and <a href="https://cms.blockworks.co/hashdex-set-to-launch-web3-etf-in-brazil-on-march-30/" target="_blank" rel="noreferrer noopener">Web3</a> ETFs on the Brazilian stock exchange B3. The company reports having 250,000 investors in its products globally. 



The SEC’s <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">approval of Teucrium’s bitcoin futures ETF</a> gained attention among industry watchers, as some viewed the agency’s decision as a step toward greenlighting a spot bitcoin ETF. Other ETFs investing in bitcoin futures contracts, which launched last year, were filed under the Investment Company Act of 1940, which has additional investor protections. 



Grayscale Investments CEO Michael Sonnenshein said the Teucrium approval “significantly weakened” the SEC’s argument against a spot bitcoin ETF. Dave Abner, head of business development at crypto custodian Gemini, dubbed the Teucrium approval a “precursor” to regulators allowing such a product.



Other industry executives still believe a spot bitcoin ETF <a href="https://cms.blockworks.co/crypto-execs-read-the-tea-leaves-on-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">won’t launch until next year</a>, at the earliest.



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Teucrium Bitcoin Futures ETF Now Carries Hashdex Brand

<div id="highlights-block_624ef8aeb71b8" class="highlights">
 <ul>
 <li>All previously approved bitcoin futures ETFs had been filed under the Investment Company Act of 1940</li>
 <li>Teucrium hopes the approval will “provide insight into the regulatory evolution of the cryptocurrency ecosystem”</li>
 </ul>
 
</div>



The Securities and Exchange Commission has approved Teucrium’s bitcoin futures ETF, which Grayscale Investments’ CEO said weakens the agency’s argument to deny spot bitcoin ETFs.



Fund group <a href="http://teucrium.com/" target="_blank" rel="noreferrer noopener">Teucrium</a>, perhaps best known for its agricultural ETFs, <a href="https://www.sec.gov/Archives/edgar/data/0001471824/000165495421006095/TeucriumBCFU_S1.htm" target="_blank" rel="noreferrer noopener">first filed</a> for its Bitcoin Futures Fund last May. The ETF was filed under the Securities Act of 1933 (‘33 Act) — the regulation under which spot bitcoin ETFs are filed.



The SEC approved a proposed rule change to launch the product, according to <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94620.pdf" target="_blank" rel="noreferrer noopener">an April 6 filing</a>.&nbsp;



Though the SEC had already permitted several ETFs that invest in bitcoin futures contracts — from issuers ProShares, Valkyrie and VanEck — those were filed under the Investment Company Act of 1940, commonly called the ‘40 Act.



SEC Chair Gary Gensler said last August that the agency would look favorably upon ETFs investing in bitcoin futures contracts on the Chicago Mercantile Exchange (CME) that were filed under the ’40 Act, citing the law’s “significant investor protections.”



A Teucrium spokesperson declined to comment on when the product could launch, but noted that the firm was pleased, though not surprised, by the SEC’s decision.&nbsp;



“We know futures markets and are seasoned veterans of the nuanced regulatory world that is futures-based exchange-traded products,” the representative told Blockworks. “We are excited to once again be on the cutting edge of product innovation and are happy to have opened the door for bitcoin to enter the ’33 Act landscape.”



Grayscale CEO Michael Sonnenshein said in a Twitter post that as recently as last week the SEC cited differences between the ‘40 Act and ‘33 Act as the reason for denying a spot bitcoin ETF, referring to the agency’s latest decision on a proposed fund by Ark Invest and 21Shares.



Those arguments are now “significantly weakened,” he added.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“If the SEC is comfortable with a bitcoin futures ETF, they must also be comfortable with a spot bitcoin ETF,” Sonnenshein wrote Wednesday. “And they can no longer justifiably cite the ’40 Act as being the differentiating factor.”</blockquote>



Grayscale is seeking to convert its Bitcoin Trust (GBTC) to an ETF — a process registered under the ’33 Act. The decision is expected in July, and the firm has said it <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/" target="_blank" rel="noreferrer noopener">would consider legal action</a> against the SEC if it continues to deny spot bitcoin ETFs.



Bloomberg Intelligence Analyst James Seyffart said in a tweet Wednesday that he believes the Teucrium approval strengthens the case for a spot bitcoin ETF and bolsters Grayscale’s potential lawsuit against the SEC if its GBTC conversion is denied.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This approval strengthens the case for a spot bitcoin ETF IMO. If SEC denies <a href="https://twitter.com/Grayscale?ref_src=twsrc%5Etfw">@Grayscale</a>’ <a href="https://twitter.com/search?q=%24GBTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$GBTC</a> conversion in early July I think this approval also strengthens Grayscale’s APA lawsuit against the SEC… time will tell! <a href="https://t.co/dYO1i4nmBe">https://t.co/dYO1i4nmBe</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1511823046977495044?ref_src=twsrc%5Etfw">April 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Seyffart had <a href="https://cms.blockworks.co/sec-ruling-on-teucriums-bitcoin-futures-etf-could-impact-spot-funds/" target="_blank" rel="noreferrer noopener">previously flagged</a> the Teucrium application as potentially having consequences on bitcoin spot ETFs in registration. He wrote in a research note last month that he doesn’t expect the SEC to approve a spot bitcoin ETF <a href="https://cms.blockworks.co/is-a-change-to-exchange-definition-key-to-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">until the middle of 2023</a>.



Sumit Roy, crypto editor and analyst at ETF.com, told Blockworks earlier this week that he predicts a spot bitcoin ETF approval to remain “still a ways away” no matter how the agency ruled on the Teucrium proposal.



“We are pleased,” the Teucrium spokesperson said, “and trust that the result of this filing will provide insight into the regulatory evolution of the cryptocurrency ecosystem.”



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SEC Approves Bitcoin Futures ETF Filed Under the ’33 Act

<div id="highlights-block_624ca878dc24d" class="highlights">
 <ul>
 <li>The Teucrium Bitcoin Futures Fund was filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed</li>
 <li>Previous approved bitcoin futures ETFs were filed under the Investment Company Act of 1940</li>
 </ul>
 
</div>



The Securities and Exchange Commission is expected to rule on a bitcoin futures ETF proposed by fund group Teucrium this week, and the agency’s decision could have implications for proposed spot bitcoin funds.



The SEC <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94054.pdf" target="_blank" rel="noreferrer noopener">delayed its decision</a> on the planned <a href="https://www.sec.gov/Archives/edgar/data/0001471824/000165495421006095/TeucriumBCFU_S1.htm" target="_blank" rel="noreferrer noopener">Teucrium Bitcoin Futures Fund</a> in January, noting at the time that it would rule on the product by April 8.



The regulator’s decision on the Teucrium fund “could expose the agency to rulemaking violations and strengthen arguments for spot ETFs,” according to Bloomberg Intelligence analysts.&nbsp;



ProShares and Valkyrie Investments launched bitcoin ETFs in October after gaining SEC approval. Those funds, filed under the Investment Company Act of 1940, were exempt from the 19b-4 process, Bloomberg Intelligence ETF Analyst James Seyffart said during a Jan. 4 <a href="https://etfprime.com/" target="_blank" rel="noreferrer noopener">ETF Prime podcast</a>, which he said puts the onus on the applicant to allay the concerns of the SEC’s Division of Trading and Markets.



The <a href="https://teucrium.com/" target="_blank" rel="noreferrer noopener">Teucrium</a> Bitcoin Futures Fund (BCFU), however, was filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed. The SEC has <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">denied proposed spot bitcoin ETFs </a>in recent months, citing that bitcoin markets lack surveillance and may be subject to manipulation.



“The SEC&#8217;s view of the market in previous responses indicated it would deny Teucrium&#8217;s fund, but we believe that&#8217;s unlikely now, as rejections could open the agency to Administrative Procedure Act violations,” Seyffart and Bloomberg Intelligence analyst Eric Balchunas wrote in a research note. “Conversely, if Teucrium&#8217;s funds are approved, the SEC will have to thread a needle explaining why the CME bitcoin futures market isn&#8217;t of significant size but is good enough for ETFs.”



SEC Chair Gary Gensler said in August that the <a href="https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf" target="_blank" rel="noreferrer noopener">Investment Company Act of 1940</a> provides “significant investor protections.”



Commonly known as the ’40 Act, its focus is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations, the SEC’s website states.



Fund group WisdomTree <a href="https://cms.blockworks.co/wisdomtree-amends-bitcoin-etf-application/" target="_blank" rel="noreferrer noopener">amended its Bitcoin Trust</a> in December to include certain requirements of the ’40 Act to the proposed product, such as using US Bank as a qualified custodian and disclosing its portfolio holdings and net asset value per share daily.



Teucrium believes the 1933 Act provides “appropriate investor protections such that disparate regulatory treatment of BCFU versus bitcoin ETFs is not justified,” W. Thomas Conner, a VedderPrice lawyer representing Teucrium, said in a Sept. 1 letter to the SEC.&nbsp;



A Teucrium spokesperson declined to comment.



“The reason folks are interested is that previous comments by Gensler were so clear in mentioning the &#8217;40 Act as the appropriate place for a bitcoin futures product to live,” Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, told Blockworks. “I am pretty skeptical they&#8217;ll just let the Teucrium filing go through, and I don&#8217;t really see a huge demand for it if it did.”



Sumit Roy, crypto editor and analyst at ETF.com, said the decision on Teucrium’s proposed product may have implications for what fund structures the SEC looks favorably upon, but won&#8217;t do anything to change the odds of a spot bitcoin ETF coming to market.&nbsp;



“That has less to do with fund structure and more to do with bringing the cryptocurrency industry into the SEC&#8217;s regulatory fold,” Roy said. “There are positive movements on that front, but a spot bitcoin ETF is still a ways away, regardless of what happens with this particular bitcoin futures ETF.”



Seyffart and Balchunas said in a research note last month that they don’t expect the SEC to approve a spot bitcoin ETF <a href="https://cms.blockworks.co/is-a-change-to-exchange-definition-key-to-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">until the middle of 2023</a>.



The agency most recently rejected a bitcoin ETF application from fund groups Ark Invest and 21Shares, according to <a href="https://www.sec.gov/rules/sro/cboebzx/2022/34-94571.pdf" target="_blank" rel="noreferrer noopener">a March 31 filing</a>.



A spokesperson for Ark Invest did not immediately return a request for comment



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