Ripple lawyer calls Gary Gensler a “bad faith regulator” as SEC approves Grayscale's Bitcoin Futures ETF

Ripple lawyer and XRP proponent John E Deaton joins the Crypto Twitter community, which is in awe after the US Securities and Exchange Commission (SEC) approved Grayscale's leveraged Bitcoin Futures Exchange Traded Fund (ETF), giving the product the go-ahead to commence trading.

Related: Former SEC Chair says it would be difficult to deny approval of spot Bitcoin ETF if efficacy is demonstrated

Ripple lawyer on BTC Futures ETF approval

Ripple lawyer John Deaton has called out SEC Chair Gary Gensler for operating in deception after the agency approved Grayscale's application for a Bitcoin Futures ETF. According to Deaton, Gensler is a "bad faith regulator."

Notably, Grayscale is the plaintiff in a case that began on June 29, 2022, against the SEC after the agency turned an application to change GBTC, the Grayscale Bitcoin Trust, to a Spot BTC ETP. Notably, an ETP is how the Grayscale camp refers to an ETF.

According to Grayscale, the regulator randomly established that the proposal to list and trade the trust's shares was not clear-cut to prevent manipulation and fraud. This is despite the regulator approving BTC Futures ETFs with exactly the same susceptibilities to manipulation and fraud.

Citing Grayscale lawyer Donald B. Verrilli, who is reportedly very good at his job,  in the July 10, 2023 appeal to the court:

...As a result, it exposes investors to an even riskier investment product than traditional bitcoin futures exchange-traded products..

Leveraging the recent developments for its 2022 case, Grayscale BTC Futures ETFs approval adds weight to the current spot Bitcoin ETF mania, with several firms re-filing after the first series of disapprovals. Notably, the argument hinges on the fact that the value of Bitcoin Futures ETFs sources from the underlying asset (BTC). In the past, the regulator used this perspective to deny a spot BTC filing.

As such, Grayscale argues that …" [the 2x Bitcoin Strategy ETF] is exposed to even more risks of the Bitcoin markets than Grayscale's proposed spot bitcoin ETP."

According to Deaton, it is a show of "bad faith" that the plaintiff refuses to approve a Bitcoin spot ETF on the grounds of susceptibility to manipulation, yet the same agency approved a Bitcoin Futures ETF, a BTC Short ETF, and a BTC Leveraged ETF which bear somewhat similar risks.

SEC at crossroads, three possible outcomes

As Grayscale pushes for the court to identify the "unfairness," the agency finds itself at crossroads, but Grayscale's chief legal officer Craig Salm offers three possible outcomes.

First, they could approve the previous Grayscale application to convert GBTC to spot BTC ETFs and move ahead to approve the current Spot Bitcoin ETF filings.

Secondly, Salm proposes that the agency configures another excuse for turning down Spot BTC ETFs, and thirdly, they should consider beginning to treat spot and Futures Bitcoin ETFs the same way. To do this, it would require that the entire BTC Futures ETFs be restructured.

Two out of the three proposals by Salm seem highly unlikely, which means that the outcome likely to occur is that the Fed will permit the proposed spot BTC ETFs to start trading, a move that could put out speculation that the agency is biased and see the likes of BlackRock, Fidelity, Valkyrie, Ark Invest and others roll out their products. 

FXStreet will bring you updates on whichever option the SEC goes with, if any. 

Meanwhile, former chair of the SEC, Jay Clayton has offered value-adding insight that could help institutional finance players get the Spot Bitcoin ETF filings approved. Read that here Former SEC Chair says it would be difficult to deny approval of spot Bitcoin ETF if efficacy is demonstrated