US Representatives Darren Soto and Tom Emmer are now calling on the US Securities and Exchange Commission (SEC) and its Chairman Gary Gensler to approve a spot Bitcoin exchange-traded fund.

While the first Bitcoin Futures ETF in the US began trading last month, a physically-backed fund doesn't seem any closer to reality.

In a letter released on Wednesday, Emmer and Soto questioned the SEC why they haven’t cleared the way for the fund that directly hold the crypto-asset when they are “comfortable” allowing trading in the ETF based on derivatives contracts, which are much more volatile than a Bitcoin spot ETF and impose substantially higher fees on investors.

“Bitcoin spot ETFs are based directly on the asset, which inherently provides more protection for investors.”

Emmer and Soto, both of whom are crypto advocates and authored legislation that would clarify the scope of regulation around the technology within the US, further went to say that by approving future ETFs to trade, SEC has “presumably” changed its view about the underlying spot Bitcoin market as Bitcoin futures are, by definition, a derivative of the underlying Bitcoin spot market.

SEC has previously cited concerns about the perceived potential for fraud and manipulation in the Bitcoin markets as a reason not to approve a spot ETF.

Gensler has called crypto a “Wild West” and said that because most of the crypto asset space doesn't come under an investor protection remit, investors are not protected against fraud and manipulation the way they are in the stock or bond markets they oversee.

The letter meanwhile gave the example of spot-based SPDR Gold Trust (GLD) for spot-based ETFs proven to be more efficient and are strongly preferred by investors.

While investors are allowed to gain exposure to gold through both the spot-based SPDR Gold Trust (GLD) and the futures-based Invesco DB Gold Fund (DGL), in its 15 years trading in the U.S. public markets, GLD has become the largest of all the commodity-based ETFs by holding $55.5 billion in assets compared to just $50.4 million by DGL. That too, without experiencing any material investor protection issues.

Additionally, in the absence of a spot ETF, numerous spot Bitcoin investment vehicles have been offered that have amassed more than $40 billion in assets under management and are held by hundreds of thousands of investors across the country.

Some of these products have voluntarily registered with the SEC to subject themselves to the same reporting standards as ETFs, reads the latter. But because these products are unable to register as ETFs, these products have been trading at steep discounts.

“Permitting futures-based ETFs while simultaneously continuing to deny spot-based ETFs would further perpetuate these discounts and clearly go against the SEC’s core mission of protecting investors.”

Grayscale is a closed-ended fund whose bitcoin trust (GBTC) has $40.62 bln in AUM and has filed for conversion into an ETF. This week, the SEC kicked off the clock by seeking comments on the proposal.

“The SEC is in a position to approve Bitcoin futures ETFs, as reflected by the trading of these products, so it should also be in a position to approve Bitcoin spot ETFs.”

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