The Securities and Exchange Commission should not “repeat the debacle of the bitcoin ETP horse race” with potential spot ethereum ETPs, a Georgetown University professor said in a letter to the agency.
Grayscale Investments has proposed converting its existing over-the-counter-traded Grayscale Ethereum Trust into an exchange-traded product, James J. Angel, an associate professor of finance at Georgetown University's McDonough School of Business, wrote in his April 5 letter.
Regarding a proposed rule change to list and trade shares of the Grayscale Ethereum Trust, Angel wrote: "Futures-based ETPs on ethereum are already listed and traded on our exchanges,” according to his letter. “Yet, for some inexplicable reason, the SEC is delaying Grayscale’s request.”
The current situation regarding proposed spot ethereum ETPs is a near “carbon copy” of the approval process with spot bitcoin ETPs, he said. In the case of spot bitcoin ETPs, the SEC approved a futures-based product but subsequently balked at approving an almost identical spot-based product, Angel said. He has no financial affiliation with Grayscale or other cryptocurrency firms, the professor told Pensions & Investments, a sibling publication of Crain Currency.
“It was quite painful to watch the SEC’s valiant attorneys attempt to defend such a weak case,” he said, referring to Grayscale Investments’ 2023 victory in its court case against the SEC.
After being overruled by the U.S. Court of Appeals for the District of Columbia Circuit, “the SEC then had the good sense to cut its losses,” Angel's letter said. The SEC subsequently “held its nose and let a plethora of spot-bitcoin ETPs trade all starting on the same day,” Angel said.
“The dam has burst,” the letter said. “We now have a tsunami of spot-bitcoin-based ETPs."
The SEC has not learned from that experience, Angel contended.
“Unless the SEC wants to damage its reputation even more and suffer yet another humiliating loss in the DC Circuit, it should again cut its losses and let the ethereum ETPs trade promptly and without fanfare,” the letter said.
The SEC can’t “put the crypto genie back into the bottle,” the letter said, adding that the best way for the SEC to fulfill its mission of protecting investors would be to “push as much crypto activity as possible into the regulated sphere while strictly enforcing customer protection rules,” Angel said.
By approving all of the spot bitcoin ETPs at once, the SEC created a “horse race” among Wall Street sponsors, he said.
“Firms that had not invested years of effort and large legal expenses were allowed to offer bitcoin ETPs on the same date as the innovators,” the letter said. “This action was perceived by many observers to be a petulant act by a regulatory agency designed to punish Grayscale for having the temerity to sue it and win.”
That horse race also unleashed the full marketing muscle of Wall Street to push spot bitcoin ETPs, Angel said.
“The SEC could not have designed a more dramatic way to push bitcoin if it had tried,” the letter said. “Indeed, if the SEC had quietly allowed spot-bitcoin ETPs when they were first proposed, there would not have been such a marketing rush.”