Feb. 07, 2022
General Comments Speaking as someone who has been an active and eager participant in the Bitcoin space for several years, I am delighted to see that the SEC -- under the guidance of Chair Gensler -- now has the opportunity to consider Grayscale's conversion from a Trust into an ETF. I myself am a holder of shares in this Trust, and would like to voice my enthusiastic support for the proposed rule change. The SEC is tasked with a dual mandate of protecting retail investors while facilitating capital formation. At present, most US citizens enjoy the privilege of freely allocating their capital to any number of publicly-traded stocks and commodities ... but, we do not yet have the same basic freedoms when it comes to the exchange of digital assets, despite the many superior characteristics that they exhibit over their analog alternatives. Several other countries (Canada, Brazil, etc.) are much further along in their regulatory adoption, and I would like to see the US remain competitive in this exponentially-growing industry. While it is true that these markets are still in their infancy (and that their novelty has been exploited on occasion by bad actors), we have also seen that equities in traditional finance are no stranger to volatility or manipulation either. Even prestigious members of the so-called "FAANG" stocks have recently been subject to one-day declines of up to 25%, while online communities have unduly influenced the value of smaller companies. Such is the double-edged sword of markets! It is ultimately the responsibility of individual investors to understand these risks, and appropriately balance them with the possibility of reward. It is the topic of reward that I would like the SEC to seriously consider. Over the past 10 years alone, Bitcoin has appreciated by several million percent -- it is anyone's guess what the next 10 years may bring. By electing to restrict trading activity of Bitcoin to the margins, the SEC runs the risk of preventing everyday Americans from participating in the creation of generational wealth. Responses to Assistant Secretary DeLesDernier's Questions 1. It is my view that the Bitcoin markets as of 2021/2022 are indeed sufficiently liquid and transparent for the purposes of an ETF. With the global cryptocurrency valuation now eclipsing $1 Trillion (and market penetration surpassing 100 million individuals) it is my belief that widespread manipulation is simply not possible in the same way that it might have been several years ago. 2. The specific subset of exchanges included in the Index are those that have earned a strong reputation over time among members of the community. The number and quality of signals are both large enough to meet the high bar that the SEC sets for the class of ETF products it has been tasked with approving. 3. I agree with the Exchange that while market manipulation is not possible to eliminate completely, the structure of this Index is robust enough to protect investors. I believe it is in the public interest to have access to this composition of signals (albeit imperfect) rather than to have no access at all. 4. I agree with the assertion that there appears to be no significant lag between the two instruments in question. 5. I believe that the proposal does indeed meet the applicable requirements of Section 6(b)(5), and that the CME bitcoin futures market has grown to such a size that makes it a difficult target for manipulation. That said, I would expect the SEC to maintain its authority (as per usual) to investigate any future claims of manipulation, and monitor the behavior of the product for any signs of manipulation in the future. 6. The Exchange makes a strong point in that the current dichotomy (specifically: the presence of a Futures product, and the absence of a Spot product) is not consistent with the Acts in question, nor is it in the general public interest to perpetuate this asymmetry.