May. 02, 2022
April 25,2022 Re: File No. SR-NYSEArca-2021-90 Rel. No. 34-93504 Notice of Filing of Proposed Rule Change to List and Trade Shares of Grayscale Bitcoin Trust (BTC) under NYSE Arca Rule 8.201-E (November 2, 2021) Ms. Vanessa Countryman Secretary Securities and Exchange Commission 100 F Street NE Washington, DC 20549-0609 Dear Ms. Countryman: I am Donna Redel, a Professor of Blockchain-Crypto at Fordham Law and a lecturer at Wharton. I was the first woman to Chair a USA exchange, COMEX a CFTC regulated commodity exchange. It is my professional opinion that a spot bitcoin ETF should be available immediately in the US markets. I teach in my courses a spot Bitcoin ETF is a far superior product than the one based on futures settlement that was approved by the SEC and available to the retail public. I am in favor of approving the Form 19b-4 that NYSE Arca filed with you to convert Grayscale® Bitcoin Trust (OTCQX: GBTC) – the world’s largest publicly traded crypto asset fund, with approximately $30 billion in AUM,[1] $100’s million in daily trading volume,[2] more than 850,000 investors,[3] holding approximately 3.4% of all Bitcoins outstanding – into a Bitcoin Spot ETF.[4] GBTC is currently trading at an approximately 25% discount to its NAV, which means the price of GBTC is less than the price of the physical asset, Bitcoin. With approximately $30 billion in AUM, that results in approximately $7.5 billion of trapped value from existing U.S. investors. One of the benefits of converting GBTC into an ETF is it would allow for shares to be arbitraged by authorized participants through simultaneous creations and redemptions – a core feature of the ETF wrapper. This would cause shares trading at a discount to better reflect NAV, and thus protect the hundreds of thousands of investors currently holding GBTC. Importantly and impressively, earlier this year you approved several futures-based Bitcoin ETFs. This is significant because to the extent the SEC had previously been concerned over fraud or manipulation in pricing of the underlying spot/cash Bitcoin markets, that concern would have to permeate across both spot-based and futures-based ETFs regardless of the level of regulation to which the fund or its underlying assets (i.e., CME bitcoin futures/bitcoin) are subject since both types of products are priced based on the underlying spot/cash Bitcoin markets. However, following approval of several future-based Bitcoin ETFs, you subsequently disapproved several spot-based Bitcoin ETFs and recently approved a futures-based ETF regulated under the Securities Exchange Act of 1934 (the “Exchange Act”), the same regulation under which all spot-based ETFs would be regulated. This inconsistency creates an unlevel playing field for Bitcoin ETFs without reasonable basis for different treatment. To that point, Grayscale’s attorneys at Davis Polk have filed two letters in the context of this comment letter period arguing that the approval of Bitcoin Futures ETFs but not Bitcoin Spot ETFs, like what GBTC would be, is “arbitrary and capricious” and “unfair discrimination” and therefore a potential violation of the Administrative Procedure Act and Exchange Act.[5] I strongly agree with these new arguments, as they are reflective of the new market dynamics following the approval of several Bitcoin Futures ETFs regulated under the Investment Company Act, subsequent rejection of several Bitcoin Spot ETF applications that would be regulated under the Exchange Act, and subsequent approval of a Bitcoin Futures ETF regulated under the Exchange Act. The SEC should approve GBTC for conversion to an ETF, avoid picking winners and losers and allow investors a choice over which product best meets their investment needs. To do otherwise would go against the SEC’s core mission of protecting investors.[6] Thank you for your time and consideration. Sincerely, Donna Redel [1] https://grayscale.com/products/grayscale-bitcoin-trust/. [2] https://www.otcmarkets.com/stock/GBTC/overview. [3] Based on Broadridge Financial Solutions, Inc. analysis of Grayscale Bitcoin Trust (Symbol: GBTC) as of March 9, 2022. [4] In this letter, I use the generic term “ETF” to cover exchange-traded investment vehicles that are required to register under the Investment Company Act of 1940 (as amended, the “1940 Act”), also commonly referred to as “exchange-traded funds” or “ETFs,” as well as those, like what GBTC is seeking to convert to, that would not be subject to the registration requirements of the 1940 Act. [5] Letter from Davis Polk & Wardwell LLP, on behalf of Grayscale Investments, LLC, Re: File No. SR-NYSEArca-2021-90 (Nov. 29, 2021), https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-9410842-262990.pdf; Letter from Davis Polk & Wardwell LLP, on behalf of Grayscale Investments, LLC, Re: File No. SR-NYSEArca-2021-90 (Apr. 18, 2022), https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-20123987-280130.pdf. [6] Regarding the SEC’s February 4, 2022 Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change to List and Trade Shares of Grayscale Bitcoin Trust (BTC) under NYSE Arca Rule 8.201-E, I believe that NYSE Arca has provided sufficient support in GBTC’s 19b-4 to allow for the SEC to approve GBTC.